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?
Cool. Cool….
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?
Zero.
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…
ed
at 8:51 am
What stuck out when I read this is that Condo #3’s selling price was the basically the same as the previous record for the building which was sold in April 2017.
Condo prices have been on the upswing over the past year so why wasn’t this unit worth more this year?
Or has it something to do with the building?
Or the price point?
Not Harold
at 9:55 am
Ed based on the phrasing, Condo 3 and the previous record holder are not similar units. A “slightly” larger unit sold for 80k less a week earlier, so by implication the 2017 sale was for a substantially larger unit than Condo 3.
So we see the expected trajectory in prices and David sells a unit at a 10-12% psft premium compared to a similar unit a week earlier. Maybe it was an awkward layout, much lower floor, or North instead of South exposure but on the surface it seems like a great ad for a certain agent’s services.
Professional Shanker
at 3:25 pm
yahh I am with you 10% in a week seems a bit of a stretch if the units were really comparable but who knows beauty is in the eye of the beholder!
lui
at 1:30 pm
David I got a question.If say 5 buyers want a copy of the status certificate can you make a copy of the original one or does it be the hard copy?.
Libertarian
at 2:08 pm
I’m not a real estate agent, so don’t take my word for it, but I’m pretty sure they are all issued as PDFs these days so that the agent can e-mail them to anyone who asks for it.
lui
at 7:45 pm
Thanks!..They cost like $100 from the property management companies so David was talking about “serious” buyers asking about the status certificates.Makes sense it’s in PDF form rather than a hardcopy.
Condodweller
at 2:00 pm
David, I am curious what the second highest offer was on property #2 on offer night in case the bully did not come back. In this case, you did well for your sellers by almost making up for the entire commission with the additional $30k. Which is great, however, I can’t help but wonder what the downside would have been if the bully did not come back.
Libertarian
at 2:27 pm
Any comments from anybody about how much is being spent here? Congrats to David and his clients for getting so much money, but spending that kind of money and having to pay condo fees on top of that, could these people have afforded houses instead?
Natrx
at 4:06 pm
They could but further out in the GTA or certain townhouses in Scarborough or North Toronto let’s say. The premium many put on no transportation or car is worth another 100-200K premium for many in terms of monthly payments. Now of course many aren’t really thinking of having family yet, which I understand as I had that sort of thinking in my later 20s/earlier 30s. How having a family changes all that.
Not Harold
at 5:22 pm
800k doesn’t buy much house in Markham these days, never mind Toronto. So you’re looking at a small or dilapidated property or going quite far out. All cause their own challenges in terms of affordability and value.
Further, while maintenance does go into how affordable a property is, it isn’t incorporated into the government’s new $1MM threshold. So while a condo and house with the same sale price have different carrying costs and require different incomes, a sub threshold + $X in maintenance condo can be far easier to get a mortgage on than a barely over threshold freehold. Fun with government regulations, blunt instruments, and step changes in policy treatment rather than continuous adjustment.
Of course a well designed policy would have far too much math to be implemented and would seem abstruse. As a sum of market behaviour the public end up being very good at doing this math but as individuals they tend to be terrified if you present them with the actual formulae. Plus a $1MM hard cap sounds good on TV and makes sense to voters in London (never mind Kapuskasing or Edmundston) while a soft cap from 0.5 to 0.8 sigma above the median house price in the city is both incomprehensible AND goes easier on those bastards in the 416.
daniel B
at 8:27 pm
I’d also add that when you tally the dozen trips to home depot each year, a couple of maintenance projects you pay for, and the fact that your condo fees make your utility bills lower, i don’t think the spread in actual costs is really that large. No one i know who owns a house ever complains about how little it costs to maintain!
Professional shaker
at 11:22 am
For context purposes at 500 per month maintenance fee, that’s 6,000 a year, over 20 years that’s 120k. I get your point on homes needing maintenance but over the long term owning a home would be less. I have lived in an older condo years back and the word special assessment is a scary one, the maintenance fees did not cover replacing all the windows in the condo.
Professional shaker
at 11:23 am
So to summarize I believe the spread is large, but I haven’t put pen to paper on this, just my gut feel
Condodweller
at 8:43 am
Of course the numbers will vary for various individual circumstances but I think you may be surprised how much smaller the gap was and it just might be in the other direction if you were to put pen to paper and actually started tracking it. House owners have a hard time wrapping their head around the seemingly large lump sum regular monthly payment vs a home owner for whom it’s a death by a thousand cuts. You’d have to start tracking all your expenses in a spreadsheet and marking each expense that a condo owner would not have in order to arrive at an answer. Your property tax bill alone may cut that $6000 gap in half if you pay 5-6k in tax vs 2500-3000 in a condo.
Then there are the intangibles which are usually overlooked. I haven’t had to shovel a driveway since I was 14 years old unless it was to help at a house of a family member. It’s extremely rare to have a power outage in a condo vs a house where downed trees take out hydro lines any time there is a storm with higher winds. And when there is an outage it get repaired quickly. During the big ice storm, I had power back within a day vs homeowners who went without power for weeks.
You could easily pay $120k when your sewer backs up in your house and never mind that you will pay more than $120k more for a house than a condo. Yes, you can say but I live in a house and that’s fine. Just don’t think that it’s necessarily cheaper.
Professional Shanker
at 2:21 pm
Taxes are not apples to apples – condo’s taxes are cheaper in part due to the price point of the dwelling, that said I do get the synergy aspect of taxes in a multi resident building. If you compare taxes per sq ft I suspect condo’s are more expensive.
I believe most people think condo’s are cheaper because they are not living in 50 + year old condos like they do with houses. Costs for housing upkeep are crazy expensive but repairing older condo’s will be too.
Your point on condo’s being cheaper to purchase, I understand but that is for good reason – you are not paying for land.
On your convenience point about condo’s I completely agree.
Professional Shanker
at 3:22 pm
Great compilation of anecdotes, especially on a usually light blog day…
Professional Shanker
at 3:27 pm
Seems like the pricing strategy being employed is to under price by roughly 10% to 20% in order to get foot traffic through the door or the condo market is hot hot hot!
JDF
at 3:48 pm
This is a great post.
And good advice for both sellers and buyers – even though it’s, in essence, conflicting advice – however, when you throw into the mix different sellers and different listing agents – there will be different results. Full disclosure – on our last house in which we got for list with a bully offer – I was fully willing to go up to 20% more on offer night, if I was unsuccessful….luckily, we avoided that scenario….so I am not surprised that your bully buyers ended up winning in the end on offer night.