Okay, don’t read that headline, if you’re a slightly overweight 12-year-old with a learning disability, an absentee father, and a need for attention. At least, that’s how I picture the average, cliché, playground bully…
Hopefully, you knew I’d be talking about “bully offers” today, and if you’re sick of hearing about the topic, well, then go re-read my blog on bike lanes and post something spiteful enough to make me add to my daily “take a moment and cry it out.”
A new agent in my office asked me the other day, “Why would any active buyer not make a bully offer on a property they’re interested in?” and I couldn’t think of a good enough answer.
Look at the following list, and tell me if you know what it represents:
-ten minutes
-nine pieces of paper
-an anxious three hours
-a real estate agent’s time
Any ideas?
If you asked the question, “What have you got to lose?” those would be the items in your answer.
Why not make a bully offer?
What have you got to lose?
It’s exactly that – some time, some paper, maybe a little bit of ink, some concentration at work, and a bit of anxiety as you wait to find out what happens. The latter is really the only downside, but doesn’t that outweigh the potential payoff?
I’ve written a lot about bully offers this year; even a couple posts this fall alone.
I don’t love the subject, because I don’t love the idea of bully offers to begin with (not to mention the process, or lack thereof, to review them), but because they’re so prevalent in our market, we simply have to cover this ad nauseum.
If you haven’t seen this before, I encourage you to watch it again – it’s my video that mocks the concept of a “bully offer” and the idea of “holding back” offers in real estate, and compares it to something as simple as buying a tube of toothpaste.
Oh, just imagine if the protagonist in that little melodrama had to deal with the incessant bully offers that run amuck in our 2015 Toronto real estate market! He’d probably never get to brush his teeth!
Sometimes, you have to dumb things down a bit to get the point across.
And sometimes, you have to separate yourself from the situation, and take a step back, to see things for what they really are.
It’s like that adage about the child, and the parent, that were asked the same riddle.
The riddle goes: “How do you get an elephant into a refrigerator?”
The adult thinks about it, tries to figure out a trick, a loophole, or a clever way to answer the riddle.
The child simply says, “Open the door, and put the elephant inside.”
The child’s mind is simpler, and thus the child provides a simple answer to a question that an adult would over-complicate. We know nothing of the size of the refrigerator, or the elephant, and we adults make too many assumptions.
So take the new agent in my office who asked me the other day, “Why wouldn’t your buyer client make a bully offer on every single property he was interested in?”
My immediate response was to come up with reasons why that wouldn’t work, or provide some context as to how unrealistic that was. But in reality, it was a very valid question, and the answer should be: “There’s nothing to stop him from doing so.”
I wrote on Monday about “fear” and how many bad Realtors, and sellers who are inexperienced and/or have hired an inexperienced Realtor, often live in fear of making a wrong move.
Well fear is prevalent in our hyper-sensitive market, and we buyer-agents, and our buyers, constantly live in fear of losing a property to a bully offer.
So why not just be the bully offer, rather than fear it?
If you can’t beat ’em, join ’em?
Do two wrongs make a right?
Alright, enough riddles.
And enough excessive line-spacing…
But if time was in abundance, and the buyer had the wherewithal to do so, he or she could submit a bully offer on every house that hits the market with a “hold back” on offers, in which he or she was interested.
You don’t want to have more than one offer out at the same time, otherwise you might inadvertently purchase two houses.
And you don’t want to let your emotions and energy get the best of you, and submit bully offer simply for sport, rather than have a genuine interest in the property.
But you could, conceivably, submit a bully offer each week on a property that you were interested in.
You could, conceivably, determine that this is the way in which you’re going to purchase a house, and thumb your nose at “offer dates” altogether.
As I said at the onset, there’s nothing to lose, except a bit of time and effort.
And a buyer who doesn’t believe in all that “fool me once, shame on me…” stuff might decide after the first or second go-around that the odds can be swung in one’s favour.
Let’s say you saw a house that you were interested in – the very first house for which you had high expectations and thought, “This could be the one.” But that house sold on the second day of the listing, via bully offer, before you could even get in to take a look.
And then let’s say that you saw yet another house that you liked, and this one you saw in person, and then contemplated offering on, but that house sold via bully offer on a Friday night when you were at a wedding in Orangeville, and you just weren’t in a position to compete.
At that point, might you consider that maybe this is just the way that houses are selling in the Toronto market?
And might you consider doing the same thing?
It’s so tough, because you hate bully offers, until they work in your favour. And you want nothing to do with bully offers, until you’re looking to win with one.
It’s kind of like Jose Bautista.
He’s an icon, and a hero, in the city of Toronto. But if he weren’t on our our team, we’d hate his guts. We would hate him if he played on any one of twenty-nine baseball teams, but he plays for the Toronto Blue Jays, and we love him.
That’s what bully offers are like.
You like them when you are the one submitting one, but otherwise, you think they’re awful.
Many buyers in Toronto right now are getting over their hate and loathing of bully offers, and simply joining the ranks.
I have an active buyer couple right now who are ready, with cheque-in-hand, to submit a bully offer on a house.
We lost out on a house that sold via bully offer in September, and once was enough for these folks. We have since submitted bully offers on two houses, neither of which were accepted, and both houses sold for substantially more than our bully offer on “offer night” (both times we re-submitted; once higher, once the same).
One of those two bully offers we made was submitted after another buyer agent had submitted their bully offer (by about an hour, go figure!), and thus we’re not alone in our attempts to secure a home via bully offer.
My clients are not of the “I won’t make an offer on the designated offer night” variety, but they are committed to submitting a bully offer on each and every house that they decide to follow through on.
Their rationale is simple: We’re going to make an offer on this house, and we’d make it a week from now on “offer night,” but what do we have to lose by making an offer 5-6 days earlier? Why NOT bully?”
There’s no fault in that logic.
They truly have nothing to lose.
As I’ve mentioned before in past blog posts on this subject, if your bully offer is rejected, there’s an extremely high probability that the house is going to sell for more on offer night. So a bully offer, in essence, gives you a “hint” at what the actual sale price is going to be.
If I had to guess, I’d say that perhaps 10% of all single-family, freehold properties in the central core, which are listed with a “hold back” on offers, sell via bully offer.
But if you’re looking to create an advantage, or gain an edge in a market as competitive as this one, love bully offers or hate them – you’re going to have to make one, eventually.
And for some buyers, the eventuality, eventually, becomes the norm…
Kyle
at 11:11 am
Buyers should just realize that in Toronto the “Offer Date” and “List Price” are merely suggestions and proceed accordingly. Those that do will be far more successful than those that just cry and whine about about how “unfair” the process is, how open outcry auctions are the solution or how the Government should do something to make it easier for them.
m
at 12:56 pm
Assuming the sellers are following the strategy of pricing under market, in the hope of attracting multiple buyers, and given bully offers have now become standard practice, it seems to me:
– It’s [almost] always in the best interest of the buyer to ignore the offer date, and
– It’s [almost] always in the best interest of the seller to hold firm to the offer date.
I don’t really see the conundrum here. The more interesting question to me is, as an agent, when would you advise a seller to accept a bully offer? I can think of very few cases where it’s actually in the sellers interest to do so.
Noel
at 1:23 pm
Buyers make bully offers in the hopes of avoiding a bidding war which might result in them having to even pay more or they do it to avoid someone else’s bully offer being accepted before theirs. Given they have no way of knowing if the seller might entertain a bully offer it’s best to try.
Bidding wars have the highest probability of achieving the best selling price for the seller, not bully offers where there is no one to compete against.
m
at 2:14 pm
Agree, that’s my point.
Geoff
at 12:34 am
From a seller’s perspective, I can see the appeal of accepting a bully offer (clearly, it works so people do accept).
1. Removes uncertainty. If they’ve bought a house already, they’ve done a budget of the money they likely need out of the old house. So while they could and most likely but not guaranteed – and it’s the last word that matters – get a higher offer on offer night, they might not.
2. May provide freedom – preparing for showings of your home, sucks. It’s exhausting and disruptive. It’s not natural to keep your bathroom in magazine quality shape all the time.
3. Risk perception – If you list at $1M, and get a chqeue in your hands for $1.1M (ok not really, but symbolically) that can be a hard thing to walk away from
So I can see why people accept bully offers, though I’d love to hear david’s opinion.
Noel
at 1:15 pm
David, I’d like your opinion on this. RECO states here (http://www.reco.on.ca/professionals-news/most-common-complaints-spotlight-series-offer-handling/) this example and what RECO advises:
‘Complaint example: Anthony Avenue from Front Door Realty is the listing salesperson on 99 Main Street. He has written direction from his seller client to delay the presentation of offers until Friday at 5 pm. However, Mr. Avenue decides to ignore the direction and bring the seller an offer on Wednesday from one of his own buyer clients. The seller accepts the offer. A prospective buyer who was planning on putting in an offer on Friday files a complaint.
Solution: To minimize complaints arising from delayed offer presentations, always get clear written directions from your seller and be clear and transparent by publishing the parameters that the seller has provided. And once you’ve got those parameters, stick with them. Changing the process or timelines mid-stream has a strong appearance that the process was not fair for all buyers.’
Do you think this precludes you as a salesperson informing your seller client of the existence of an offer (which you have not seen but simply know about because a buyer representative told you he has one ready) while not actually presenting your client with it? Would that violate what RECO is advising above? I think not because you are not actually presenting them with the offer itself but merely telling them one has been prepared. They can then choose whether to change their instructions and take a look at it or not. Or, would you just keep mum about it?
Noel
at 9:25 am
David? you there?
Noel
at 9:09 am
Hey David, Would love to know your answer when you get a chance.
Joel
at 3:25 pm
To me a bully offer is much the same as the guy that drives up the on ramp merge lane to pass a few cars and get in line. It’s understanding if someone does it every once in a while, but it’s a a-hole move.
I would think that most agents wouldn’t want to be known as the guy that always does it, but sometimes out of frustration or a push from a client would encourage them to put one in. Toronto is a competitive city and many are happy to inconvenience others for a slight advantage, but it just makes a tough situation worse.
Pete
at 9:12 am
Totally disagree. When holding back offers first started, people thought that was an a-hole move. “What happened to just putting an offer on a house if you were interested?”. Now holding back offers is the norm, but it benefits the sellers. Bully offers are just a way of combating that shift and trying to put some power back in the buyer’s hands. In effect, bully offer is just a negative way of describing a buyer who is not caving to a system that favours the sellers.
Jonnathan
at 7:24 pm
…in my case, a bully offer started a bidding war! I won with emotions in check and am now out of the market; until a developer pays me more to leave.
bugeyedbrit
at 9:42 pm
I ended up in my current property due to a bidding ‘war’…..and I wasn’t the highest bidder either, but it turned out my offer was the most amenable to the seller, I can see how a bully offer is attractive to a bidder, they get to decide how much they are willing to bid and walk away if their conditions are not met, and really what does it cost to bully an offer anyway, the cost of a certified cheque,…
Kyle
at 11:15 am
There are a few West end neighbourhoods, that i follow very closely. I’ve been tracking the sales and have noticed that year after year, during both the Fall and Spring Market, they start off WHITE HOT, and in that kind of market there isn’t any downside in trying a bully offer. In fact one who doesn’t make bully offers will likely miss out on a lot of houses. However after a few weeks of WHITE HOTNESS the market tends to settle down and many sellers who hold back offers, quizzically end up with only one offer or none at all, come offer night. In these situations someone who put in a successful bully offer would have over-paid. Obviously, no one can know for sure how many buyers will turn up on offer night, but the point is, that there is potentially some downside risk in putting in a bully offer, and one should assess how hot the current market is.
Here’s some data i collected from the neighbourhoods that i monitor closely (data consists of 48 sales in September and 45 sales in October from about 6 neighbourhoods in the W01 and W02 area):
September Avg Sale Price:List Price = 109%
October (so far) Avg Sale Price: List Price = 104%
September Avg Days on Market = 8.3
October (so far) Avg Days on Market = 13.6
This tells me that in October many of the houses that held back offers, did not actually sell on offer night (which is typically less than 10 days after listing) and that many of the prices realized in October were probably “only” at List Price.
Right now being late October, if i were interested in buying a specific house that had a hold back, i probably would ask my Agent to make sure that we were informed of any bully offers that came in, but i would probably wait until offer night to present anything. There is a good chance that the competition on offer night will not be as high as the seller anticipates.