Why Would You Accept A Bully Offer?

Business | April 8, 2013

Won’t there be somebody on offer night with a better bid?

I think so, and my colleagues agree.  So why would a seller ever accept a bully offer?

A quick refresher, if I may….

A “bully offer” is an offer that is submitted before the designated and planned “offer day” for a listing that is “holding back” offers.

If a property is listed on April 8th, and the MLS notes specify, “Offers will be reviewed on Tuesday, April 16th at 7:00pm, please register by 6pm,” and you don’t want to play by the rules, and don’t want to wait, you can submit a “bully offer” any time before that.

What is the point of a bully offer?  Simple.

If you’re a buyer, you’re trying to get the property for less than it would sell on offer night.

If you’re a seller, you’re accepting an offer that you believe would be higher than the best offer on offer night.

Clearly, both can’t be true.  There’s no way for a win-win here amongst buyers and sellers.

So what is the most likely outcome?

It’s difficult to put a number to it, but I would guess (and my fellow Realtors can chime in on this), that less than 10% of all bully offers submitted are successful, which is to say that less than 10% of bully offers submitted will actually be accepted by the seller.  Or maybe 10% is being generous?

I submitted a bully offer on an east-end home earlier this year and the listing agent called me and mused, “Thanks, but you’re late to the party.  We’ve already had three bully offer attempts.”  The listing agent chose not to review, work with, or accept any of these bully offers, and instead, wait until the scheduled offer day and time.  The house sold for far more than our bully offer price, and I’m guessing, far more than the other three as well.

And this is the point, and the title of today’s blog: why would you accept a bully offer?

Don’t you think that as a seller, you’ll always do better on offer night?

I do.

The whole reason that listing agents “hold back” offers is to create a frenzy for the property.

You can’t have a frenzy with ONE offer, hence the reason I don’t feel a sole bully offer, six days before offer night, is going to be the highest possible price for the property.

We just passed the NHL trade deadline, and for those hockey fans who follow the business side of sports, consider a team’s general manager who has a player to trade.  That general manager needs to create a market for the player, and create value.  Usually, the general manager will speak to several teams – even those he has no intention of trading with, to try and create artificial demand.  The more interest he can create for the player, the more that other general managers will have to pay.

It’s the same thing with real estate, or perhaps any commodity.

This is why listing agents host “offer night” in the brokerage, and encourage buyer’s agents to show up in person, and even bring their buyers.  Try and picture that lobby, with eight agents, all waiting, all sizing each other up.  Maybe two or three agents brought their clients and are pacing outside.  A couple agents are on their cell phones, and others are whispering in the corner of the room.

That is how you create artificial demand, through emotion, anxiety, and an all-around frenzy.

I’m not convinced that the ONE bully offer can do the same thing.

So let’s get back to the seemingly-rhetorical question: why would a seller accept a bully offer?

The reason – the only reason a seller would accept a bully offer is if they thought that they wouldn’t see that price again on offer night.

And why wouldn’t they see that price again?

Well, it’s up to the buyer’s agent that submits the bully offer to convince the listing agent that this is a “one time only” offer.

The excuses are all the same.

“My client is only in town for one day, and today is the only time we can make this offer.”

“My clients are going to be in Europe on offer night, and there’s no fax machine in their hotel!”

“My clients don’t want to be in competition for the house, and they will NOT be submitting an offer next week on offer night.”

It’s all BS.

If a buyer is ready to offer $1,100,000 on a house listed at $949,000, the first day of the listing, they’re going to be around seven days from now to offer again on “offer night.”

The idea of a client “only being in town for one day” is laughable, and while I’m sure it’s happened before, it doesn’t happen 2,489 times per week as would be the case if everything Realtors said was true.

Sure, people vacation, but again – not as much as Realtors would have us believe.  This is a classic case of “the boy who cried wolf,” as I’m sure once in a while, a bully offer really is submitted because the buyers are going to Europe next week and staying in a villa with no cell phone service or internet connection.

And as for the notion that a buyer wouldn’t want to be in competition, so they’re submitting a bully offer for 121% of the asking price, I don’t believe it.  Anybody paying 121% of the asking price IS in competition; they’re competing with themselves.

So now that I’ve debunked the myth that the buyers submitting the bully offer won’t be back to offer again on “offer night,” what is the incentive for the seller to accept the bully offer?

None.

I think I might have mentioned this already…

I have submitted several bully offers in the past few years that have been accepted, and all of them were at prices lower than what we would have offered on offer night.  That’s the whole point, in my opinion.  You get to test the waters, see what the sellers’ expectations are, and maybe you’ll get lucky.

I’ve also been on the receiving end of bully offers, as a listing agent, and I’ve have NEVER encouraged my sellers to accept them.  Each and every time I’ve received a bully offer, I’ve always sold the house at a higher price on offer night.

And more often than not, the agent who submitted the bully offer has come back with something higher on offer night.

That’s just the way it works.

So again, why would a seller accept a bully offer?

Because they’re stupid.  Because they’re anxious.  Because they got bad advice.  Because they’re naive.  Because they’re easy to manipulate.

Take your pick.  Any, or all of the above.

I’ve seen several houses sell this spring via bully offers, all of which were at prices that were lower than what was expected.

That damn house in High Park still irks me.  Listed at $549,000, and with expectations as high as $650,000, the listing agent pulled the trigger on a bully offer of $583,000 on the third day of the listing.  If I had known she was so inexperienced, I’d have encouraged my buyers to submit a bully.

But why would a seller accept a bully offer?  You assume they wouldn’t, and thus you don’t even try.

But that’s the problem.  You can’t assume that all sellers and all listing agents are smart.

And that’s why buyers give it a shot.  “You never know.”

If you’re a buyer, and you think the market is a completely efficient machine, keep in mind that the human element will keep it from ever being 100% efficient.  Give a bully offer a shot, you have nothing to lose, other than eight pieces of paper, fifteen minutes of time, and perhaps the humility of your Realtor.

But as a listing agent, I’ll never tell my clients to accept a bully offer, because I know with absolute certainty that we’ll always do better on offer night.

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17 Comments

  1. Joe Q.

    at 9:12 am

    David, can you clarify the protocol around bully offers for me?

    My understanding is that if a bully offer is received for a property, the listing agent is required to contact those who have previously expressed an interest, such as agents who have already shown the property to their clients, etc. I seem to remember that failure to inform other buyers is considered a major breach (was there a recent RECO judgement about this? I may be mis-remembering.)

    In that sense, the purpose of the bully offer would be to catch other buyers off-guard.

    1. David Fleming

      at 10:21 am

      @ Joe Q.

      You’re hitting a nerve here! 🙂

      You’re right – when a bully offer is registered, and is going to be reviewed (ie. considered) by the seller, the listing agent is requited to contact those who have “expressed interest.”

      This definition is open to interpretation. I believe that somebody who has shown the property has “expressed interest.” I believe that any agent who left a business card behind at the agent’s open house has “expressed interest.”

      But what do most listing agents think? Whatever they want.

      I can’t tell you how many times I’ve seen a house sell via bully offer, and I’ve called the listing agent and asked, “Why didn’t you have me paged?” They usually get uppity and snarky and say, “Well….you should have told ME you wanted to be kept in the loop!” Or my favorite, “I’ve had 48 showings – I can’t call all those people!” Yes, yes you can. You certainly can! Or get your assistant or front desk to make the calls. At 1-minute per call, that’s 48 minutes. How much are you getting paid on this deal? How much is your real estate license worth?

      But that leads to your point about RECO. People have this misconception that RECO is armed with 10,000 detectives ready and able to investigate complaints. The reality is that a very small percentage of complaints ever get through the first and second hurdles, and in my opinion, complaints from Realtors don’t carry as much merit as complaints from the general public.

    2. Joe Q.

      at 11:17 am

      OK, I just found the judgement on RECO’s site: a Realtor was fined for a deal that he double-ended, in which he helped set an offer date, then presented a bully offer from his own buyer (below the asking price), which was accepted by the sellers. A Realtor who had previously shown the property to her own clients was not contacted, and only learned that the property had sold when she registered with the fined Realtor’s office on offer day (MLS had not been updated).

      The double-ending Realtor was fined $10,000 and ordered to re-take an OREA course.

        1. DAS

          at 9:43 am

          The sooner a property sells the sooner the seller’s agent can move on to selling the next property.

          For example, submitting a bully a week in advance. Since the buyer’s and seller’s agent appears to be exactly the same person they save themselves a week of work and waiting.
          Freakonomics outlines this nicely. A price difference of $10k is only $500 to this agent, 2.5% * 2 as the agent for both parties. Less if there’s a different agent.
          The agent(s) are now free to work on selling a new house/client.
          With houses going for over 1/2 mil $250/$500 in a week against $12k/$25k now is a no brainer. You might get another $12k in commissions on the time saved moving a house fast and below what it would get in a more honest scenario.

      1. oren

        at 6:28 pm

        haha, that’s an awesome story.
        I bought my house on a “bully offer”. Felt pretty good being the bully this time around.

      2. JC

        at 11:27 pm

        sometimes you just can’t make this sh*t up.
        Idiot.
        The fine was too low in my opinion. AND he should be forced to take the RECO update course in class… twice. That would be more like ample punishment. 😉

        1. JJ

          at 9:35 am

          He’s unethical and definitely should have been fined more than 10K. But he still may have come out on top financially right?

          Correct my math… but lets say the house sold for 1 mil but would have sold for 1.1 if sellers had held off offers and not gone with the realtor’s own bully offer.

          4% comm on 1 mil is $40,000
          2.5% comm on 1.1 mil is $27,500

          So even with the 10K fine he still comes out ahead.

          Of course if the house sold for a lot less, or the commission rates were different it’s a different story.

          But he’s still an unethical a**hole.

          1. George

            at 11:39 am

            Just a fine? Why on earth is he allowed to keep his licence? Sometimes you don’t deserve a second chance, especially when in regards to something as ingrained as ethics.

          2. JC

            at 11:42 am

            We’ll never know what commission rate he/she was charging his/her client for selling both ends, but if this happened at the beginning of the year, it’s possible that the agent involved would be handing over a higher portion of his/her commission to their Brokerage than they would at the end of the year (often as high as 40%).

            So it’s quite possible that by the time the dust settled in this case, that he/she was (slightly) in the hole. And rightfully so.

          3. 2sides

            at 9:23 am

            Anonymous posters are so quick to judge without having all the facts. Simply relying on a news story with all its spin can lead to false conclusions. Don’t know the full story here, but the fine indicates something was amiss according to the myriad of rules out there.

            Let me pose a question, and please consider it openly: As a realtor, is it your job to sell your client’s house for the highest price possible?
            Give it some thought. Who is the client? Who is paying you? Who is calling the shots?

            As a realtor (anyone, really), it is your job to fulfill the wishes/desires of your client to the best of your ability. Communication is key to set realistic expectations, bla bla…not the point here. The point here is, that without knowing all the facts, perhaps it was the seller who instructed their agent to sell the home earlier, for whatever reason (I can think of a few). Simplest reason – a relative/friend/neighbour/whoever noticed the sign, walked in, and the seller decided they would rather sell to them at whatever price they wanted to.

            Also, we are quick to assume the realtor took full commission on both ends.

            For more of a generalization: how does the industry deal with sales where the seller wants to sell to a specific buyer?

          4. Joe Q.

            at 1:49 pm

            ^ It wasn’t a “news story” — this wasn’t reported in the news (but perhaps should have been) It was a judgement on RECO’s site with an agreed statement of facts. You can read through it yourself. E-mail David and he can send you the link.

          5. ScottyP

            at 8:09 am

            Sounds like 2sides didn’t know all the facts before posting that response.

  2. JC

    at 9:52 am

    I know of one case where the seller accepted a bully offer that was more than they expected. Bonus for them!
    Unfortunately, for the bully (and his agent)… things haven’t gone as planned. You see, they planned on leveling the place and rebuilding, but forgot to take into account little things like bylaws and zoning that would prevent them from building what they wanted. It’s been two years and the house is sitting as-it-was, vacant after the seller spending over 1 mill on it.

  3. Potato

    at 1:05 am

    But how do you come across that absolute certainty? In a hot market where the only question is whether there will be 3 bidders at the table or 7, then sure, turn down all bully offers. But what if you’ve only had 3 showings, and aren’t sure if the bully offer will have any competition on offer night — in that case, though they may be back, it may not be at the same price as the bully was for. It’s that nagging doubt that makes people accept them.

  4. jps

    at 9:59 pm

    One reason I would think to accept a bully offer is because the seller doesn’t have any idea/indication if any other offer from anyone else will be coming down the pipe on the original offer night (how can one determine that and/or “know with absolute certainty that we’ll always do better on offer night”).

    And if they don’t know that, why is taking the sure bully offer (if the offer is reasonably acceptable) make the seller stupid? I can see the seler being anxious maybe, even playing it safe, but given bad advice? Naive? Easily manipulated? How so?

    just curious.
    jps

  5. jps

    at 10:00 pm

    How can you “with absolute certainty know that we’ll always do better on offer night”. I would think one of the main reasons to accept the bully offer is thinking there will be no other offers.

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