The 2017 real estate market is rampant with “bully offers,” which occur when an aggressive buyer submits an offer before the scheduled offer date, that’s “so good,” the seller just can’t turn it down.
Most of what we talk about with regards to bully offers is from the buyer’s perspective, ie. how to be aggressive, the pros and cons, etc.
But what about the sellers? What’s the mindset of a 2017 real estate seller in Toronto, when it comes to the bully offer?
Let me walk you through an example, which outlines the risk/reward equation, and the seller’s mindset throughout the process…
Nobody has a crystal ball.
Not the top economists in the city.
Not the top real estate agents.
Not the media who write about real estate incessantly.
And not your neighbour, or friend, or co-worker, that always seems to tell you who was going to win Sunday Night Football, when he sees you at the office on Monday morning.
The crystal ball is just not logical.
I learned this a long time ago, well before I got into real estate.
I believe it was Christmas morning, 1987.
I unwrapped my new GI Joe, took him out of the package, and immediately knew he was a fraud.
His name was “Crystal Ball.”
But that stupid thing he held in his hand was anything but:
That was supposed to mesmerize somebody?
It’s a shield with a design on it – hardly a “crystal ball,” I would think!
At the risk of losing your trust, I will tell you that I’m not clairvoyant, I’m not a psychic, and I cannot predict the future. Much like the GI Joe pictured above, I don’t have a crystal ball.
But in our business, many times, we are expected to predict the future.
How many offers will that house get?
What will it sell for?
As is the case in any industry, some participants are better than others. Some are more qualified, and some are more experienced.
I see this all the time, when I receive eight offers on one of my listings, and two of the offers are for the list price, with conditions. I feel bad for the buyers more than anything, since they have inadequate representation, and will probably never get into the market.
But in the end, every buyer, seller, and agent must have a practice for instituting their “best guess” in this crazy 2017 market.
When it comes to buying, you’re going to know whether you were right or wrong, or how close you were.
If you bid $980,000 on that $879,900 listing, you’ll find out if you’ve bought a house that night, and if you’re not the “winner,” then you’ll know how far off your bid was when the sale price is posted the next morning.
But what about when you’re the seller?
What about when you’ve worked for three weeks to get your house or condo ready for sale, you’re on the market, and all of a sudden a “bully offer” is submitted on your property?
How do you predict the future there?
As a buyer, you’re always going to know how your best guest fared.
But as a seller? If you accept that bully offer, it means you’ll never get to know what you could have had on offer night.
Before I get into my story, let me tell you right off that bat that nine times out of ten, I would never advise my seller to accept a bully offer.
If this was 2015? It might be 50/50.
2016? I’d wait for offer night more often than not.
But in 2017, you can’t accept a bully offer, as a seller for one simple, but incredibly important reason: you have absolutely no idea what your property is “worth.”
How is that for “crystal ball” territory?
Did I just say, as a professional in this industry, that I have no idea what a property is worth?
Yes. Yes I did.
But with “worth” in quotations, you know there’s more to the story.
I can tell you what I think a property is worth, either in terms of fair market value based on recent comparable sales, based on my ever-accurate “gut feeling,” or based on what I think a buyer could pay, in this crazy market.
But can I tell you what the property is worth to a crazy buyer, in this crazy market, based on their own definition of what a property is “worth?”
No, I can’t.
And that is why you wait until offer night.
I had a listing in February for a west-end loft, that, based on a comparable sale from November, was worth $550,000.
I was hoping to get $600,000 for it, because the market was so incredibly insane.
But on offer night, a buyer was willing to pay $665,000 for it.
And that is why you wait for offer night.
If we received a bully offer for $605,000, what would we have done? Would we have taken it? I shudder to think.
But that is why I advise all of my sellers, “Wait until offer night.”
All, except one, that is.
I recently listed a house for sale in Mississauga for $599,900, that, as is the case in 2017, we had hoped was worth $575,000 – $600,000 back in November. We weren’t significantly under-listed like other listings in the area; $600K was reasonable, and we were hoping for a $25K premium on offer night, maybe more.
We spent three weeks getting the property ready for sale – de-cluttering, moving, painting, cleaning, and staging, and when the listing hit the market, we had eight showings booked on the first day, and ten the next.
The sellers were really enthused! They had bought another house, firm, like most people in this market, and they were nervous – also like most sellers in this market!
On the first day of the listing, an agent called me and said he wanted to submit a bully offer.
Now as an aside, I can tell you that in thirteen years in this business, I have never had less faith in the average Realtor out there – especially after the last three months. Agents will actually call me and say, “I’d like to do a bully. Soo…..what do I do now?”
They’re asking me how they are supposed to submit a bully offer?
I guess they don’t teach this at OREA “College,” huh?
When submitting a bully offer, the key is to, ya know, submit the offer. Not pussyfoot around, and ask the agent if they’d like to see one. You sign it, fax it, email it, register it, and call the agent to tell them you’ve submitted it, after they’ve already received it in three different ways.
In any event, I spoke to this agent about my Mississauga listing and his potential bully offer, and he wanted me to tell him what our expectation was on price (another great question to ask), but I told him he’d have to submit an offer before I responded in any way, shape, or form.
Then he did something amazing – he told me what he was going to submit. This, of course, is a mistake, since it gives the listing agent an opportunity to say “no,” but he didn’t see that, and said he felt that the property was “worth about $640,000 to $650,000.”
Another beauty move on his part – a range.
Why give a range instead of a number? You say, “$640,000 to $650,000,” and all I hear is “$650,000.”
That gave me an idea of what agents were thinking on value, which was great, since it was more than we were expecting, but also because now I had a benchmark.
The next day, another agent called me and said her client wanted to submit a bully offer. Just for fun, I said, “How much?” and she actually answered: “$650,000.”
I guess that really was the fair market value here, or close to it.
I told that agent as well that we would be waiting until offer night, and she thanked me, and said she would be ready.
Later that day, another agent, this being the third agent now in two days, told me she was bringing a bully offer. Only this agent had already faxed it to my office, and emailed it to me – she was calling me about five minutes after she had clicked “send,” which is exactly how I would submit a bully offer these days.
I had worked with this agent before, and I found her to be reasonable and knowledgeable, and I hoped that this offer would blow me away!
She gave me the whole song and dance as most agents submitting a bully offer do: how her clients loved the place so much that they couldn’t bear to wait until offer night, and thus why they were submitting it today.
I opened up the PDF on my computer while I was on the phone with her, and there it was, in all its glory, in front of my eyes: an offer for $641,000.
What the $*&%?
This was a “bully” offer?
As an agent once told me, “If you’re going to bully me, then punch me, don’t slap me.”
$641,000, as a bully offer. It made no sense.
Did this agent think that we would move our offer date, for our $599,900 listing, for this $641,000 offer?
Did this agent think that she was holding something so unbeatable, so rare, so incredible, and so good that the sellers wouldn’t dare “risk” going to offer night, for fear of not getting $641,000 again?
I told her what I told the other agents, “That’s a fantastic number, and if we get it on offer night, we’ll be absolutely thrilled! But right now, we’re going to stick to the plan, and wait.”
But in my mind, I was thinking, “Is this what people think the property is worth? And is this what somebody thinks is bully-worthy?”
The next day, which was Thursday (the listing came out on Tuesday), another agent told me he was going to bring a bully offer, and I just about threw up.
What was it going to be this time? The list price?
He was a nice enough guy, and we got along on the phone pretty well, but I wasn’t overly optimistic, given how things had gone thus far.
We were now up to 29 showings, and we had an open house scheduled for Saturday & Sunday. Things were moving along, and I was very optimistic about our offer night.
I told this agent, “We’re not going to accept a bully offer, but I can’t stop you from sending one,” and that’s exactly what he did – he sent one.
Having already seen $641,000, and heard $650,000 twice, my hopes weren’t running high as I opened his offer at 6pm on Thursday night.
But then I saw something in his offer that I did not expect to see, in his offer, or anybody else’s.
Yes, the number 7, as in the number the offer price started with.
The offer was for $705,000.
And there was the “punch” you want to feel when somebody bullies you.
I called my clients, and they were over the moon. They wanted to accept, and of course I told them to, but there was one more little nugget here: the offer was irrevocable at 1:00pm, the next day.
Usually bully offers have a very short turn-around time; you receive it at 9:30pm and it’s good until midnight.
But in this case, I had the luxury of emailing all the other 28 agents who had shown the property to tell them there was a bully offer registered, and that we’d be reviewing it at 12:00pm the next day.
As I said at the onset – when you accept a bully offer, the one downside is you never get to know what you could have got.
But in this case, we were actually able to find out.
I emailed all 28 other agents, and then had them paged through their brokerages the next morning.
Guess how many phone calls I got from those 28 agents, including three that had wanted to submit bully offers?
I got one phone call, and it was from an agent that said, “My client is in New York until Friday, and he was going to attend the open house on Sunday. Can you please tell me if it ends up selling?”
We waited through the morning, and past noon, but nobody else called, let alone came to the table with an offer. The $641,000 buyer didn’t come back, and the two agents who called with “potential” $650,000 bully offers didn’t call either.
At 12:55pm, we accepted the $705,000 bully offer, and were happy as hell with the price, but even happier to know, unlike just about every seller who takes a bully offer, that there likely wouldn’t have been a better offer out there on offer night.
So what’s the moral of the story here, folks?
If you’re a seller in the 2017 market, you’re going to do better, 98% of the time by waiting until offer night.
But once in a while, an offer comes through that’s too good to pass up.
And your job, along with your agent, is to look into that crystal ball of yours, and determine if the offer you’ve got in hand is that exception to the 2017 rule…