Here’s a question that every single seller should be asking him or herself, before a bully offer comes in!
The market is spotty right now, and there are properties sitting on the market, but there are also multiple offers like I’ve never seen. And with multiple offers, come bully offers.
I’ve had bully offers on my last three listings, so let’s discuss the pros and cons of accepting a bully, and I’ll give you the inside scoop on what my sellers decided…
And how was your Tuesday night?
You watched the Toronto Raptors win Game #2?
You took in the Jays’ double-header?
Me? Well, I was in the midst of a twenty-five-offer melee on an east end house!
Yes, twenty-five offers. How do you feel, as a buyer, when your agent says, “Hey guys, so, um, (gulp), there’s, uh, ah, (exhale), um…..twenty-four competing offers………..but don’t count yourselves out!”
Probably the way my clients felt.
We put forth an offer that would have got the house one month ago, but alas, it’s April. Things are getting wild in the entry-level freehold market, and by “entry-level” I mean anything under $1.1M.
With 25 offers on some listings, it makes a buyer wonder, “Should I be making bully offers?”
And the answer is an unequivocal: yes.
Yes, because why not? What’s to lose?
The only reason to not make a bully offer is that you feel there’s a chance you’d pay more via the successful bully offer than you would on offer night. And the odds of that happening are slim.
I honestly don’t think there’s any debating that point, so let’s turn things around and look at it from the seller’s perspective.
As a seller in this market, assuming you have a house that is listed with a set “offer date,” and your property is extremely marketable, how do you decide whether or not to take a bully offer?
Try searching on Google for “when to take a bully offer” and the very first three results shown are articles I’ve written in the past:
April 8th, 2013 – “Why Would You Accept A Bully Offer?”
April 9th, 2015 – “What Are The Rules Regarding Bully Offers?”
March 13th, 2017 – “Bully Offers: How Do You Know When To Accept One?”
That last blog sounds like it’s pretty much what I’m writing about today, but there’s some new insight to offer this time around.
Through the first four months of 2018, I’ve had a bully offer attempt on every listing I’ve brought out, where I was holding back offers.
And guess how many my sellers have accepted?
Now to be fair, perhaps we just haven’t seen any offers worth taking.
Or perhaps these sellers have all possessed an above-average risk-tolerance.
But I’ve helped them along the way, and the process has been the same for every seller.
The first thing a seller should do in this market is have the discussion about potential bully offers before anything comes in. You want to make a decision when you’re calm, unemotional, and rational. And that is certainly not when somebody submits an offer with a 4-hour window to accept.
So once a property is listed for sale, I instruct my clients to come up with two numbers:
1) The price at which they would say, “I just can’t turn this down.”
This is the price where they’re beyond simply ‘satisfied,’ and they’re happy, it exceeds their expectations, and they would fear this offer not coming back on the scheduled offer night.
2) The price at which they would say, “No, you’re kidding. That’s insane.”
Why this number?
Well, because it simply reinforces the first number.
You’d be surprised how many people give me Price #1, and then when they’re presented with a bully offer at that price, they say, “I want to wait until the offer night.” So your second number is basically the “holy sh!t” price, where there is no discussion, no debate – you jump at it.
I’ve had three listings in the past week that all had “offer dates,” and all received bully offers.
Listing #1 was a condominium, priced at $499,900.
This condo was probably “worth” close to $500,000 on December 31st, but as the market moved along the way it did, the ceiling for this property rose rapidly.
We cleaned the property out, staged it, and photographed it, and even the sellers said, “Wow, it looks so much better than what we had!”
After seeing about a dozen appointments booked in the first 24 hours, I told them they would likely get a bully offer, so they should come up with their “two numbers.”
They called me and said that the first number was $575,000. If they received a bully offer at that price, they’d have to take it.
The second number was $600,000, and if somebody was willing to pay that, they’d throw away everything they knew about real estate.
We received a bully offer for $520,000, and said, “Thanks, but no thanks.”
That buyer improved to $545,000, without being prompted by us, but we still told them we were waiting until offer night.
When it comes to bully offers, there’s always the story from the buyer-side about how they’re heading out of town on offer night, and they have to submit an offer ahead of time, not a bully, but a pre-emptive, and they’d love to be able to bid again on offer night, but they just can’t.
Guess how many of the bullies came back this week?
All of them.
On offer night, the buyer with the $545,000 bully came back, and this time submitted an offer of $575,000.
But that wasn’t even close, in the end, as we ended up with an offer of $605,000, which we happily accepted.
Listing #2 was a $699,000 unit, which, like the first one, had a slew of showings booked in the first 24 hours.
Every agent out there will call or email and ask, “Will your clients look at a bully offer?” And as I wrote on Monday, the answer is always, “We prefer to wait until offer night, but we can’t stop you from sending a bully over.”
Agents get so confused by that.
It’s like they expect you to say, “Yes, we would, and it’s $$$ much. Not only that, I’ll work exclusively with you, not tell anybody else, and risk a fine from RECO.”
On the $699,900 listing, I told my clients, as I did with the first set of sellers, to come up with their “two numbers.”
Only this time, I didn’t get the ‘two numbers’ from my sellers before a bully offer came in!
Unlike the first property, where the bully offer was so far below what we expected, this one was right up against border.
The offer was for $765,000, and my client said, “Our number would have been $750,000. That’s where we’d have taken a bully. Our ‘holy sh!t’ number would have been $775,000.”
It was Friday night, my clients were preparing to head to Boston to run the marathon, there was an ice storm on the horizon, and the timing just felt awful.
More importantly, however, my gut was telling me that we’d do better on offer night.
If you had asked me how I’d felt about $765,000 when we first listed the property, I’d have told you I dream about that number.
But four days into the listing, I’d had 40-something showings, and a dozen agents had asked me for a copy of the condominium’s Status Certificate – always a good sign of interest. Call me crazy, but I felt the price ceiling was so high that it offset the potential price floor.
One of the sellers was having a tough time turning down the $765,000 offer, and I don’t blame them.
So I did exactly what I’m not supposed to do in this position: I talked them into rejecting the offer.
My role, in theory, is to put all the information on the table, address potential outcomes and outline risk-reward scenarios, and let the sellers make the decision.
But then again, if that’s the case, then what the hell is my value as an agent?
My gut was telling me that we would do better on offer night. I felt as though our floor had to be $750,000, if the bully didn’t come back, and the upside here was $800,000.
My sellers listened to me, and we rejected the offer.
They flew to Boston, ran 42 KM, came back to Toronto a day late because of the ice-storm, and were ready and waiting on offer night.
In the end, we blew past the $765,000 bully, and our “holy sh!t” price of $765,000, and sold for $792,000.
This time around, it was the original bully that took the property. They did come back, after all, just as the bully did for Listing #1.
Listing #3 this week was for a $799,900 condo, and this was just as busy as the first two.
I asked my sellers for their two numbers, and they said $875,000, and $900,000.
Those are the exact same numbers I had come up with, myself.
We received a bully offer for $840,000, and rejected it.
We then received a second bully offer for $853,000, and rejected it as well.
Offer night came, and we “only” had five offers. Who’d have thought?
One of the predictors I use to try to gage how many offers will materialize is looking at the number of agents who have asked for a copy of the Status Certificate, and dividing by two.
In this case, we had 13 agents ask for a copy of the Status, and five offers. So it was a bit light, and I also just had this “gut” feeling that we’d be looking at 7-8 offers.
In any event, the price we got was fantastic – $880,000, which set a new record in the complex, and beat out the previous sale of $875,000 which is from April of 2017, aka “the market peak.” I was quite pleased with that, especially as a similar unit (slightly larger, different layout) sold for $801,000 a week earlier, although far less effort was put into that listing.
As was the case with Listing #2, the original bully prevailed once again.
So what can we take away from these three listings, which represent a small sample size, but a recent one as well?
1) All three properties received bully offers. If you’re a seller, be prepared.
2) All three properties sold for more than the original bully prices. 11%, 3.5%, and 3.2% more.
3) Two of the three ‘winning’ bidders were the original bullies.
To the buyers out there, my advice: make bully offers.
To the sellers out there, my advice: don’t take bully offers.
I think nine out of ten times, the seller will get more money on offer night. But once in a while, a bully offer comes so far over the top (hello, Monarch Park…) that there’s just absolutely, positively, no way the seller can turn it down, nor should they. There’s just no way they’d see that on offer night.
If you’re a seller, you’d better hope your agent knows what he or she is doing, and has a good “feel” for the market.
And if you’re a buyer, just keep on trying…