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?
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?
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.