What’s the deal with Bully Offers?

What’s the deal with Bully Offers?

Just like most home buyers are confused and confounded with the way we deal with multiple offers here in Waterloo Region, to make the current real estate environment make even less sense, we sometimes also have to contend with Bully Offers – also know as preemptive offers.

What are Bully Offers?

For the past year or more, the majority of the houses, townhouses and semi-detached homes have been sold using a new method for us here in Waterloo Region, the phenomenon of “holding offers”. Essentially, listing a home on the market for a week and reviewing all offers together at a predetermined future time. (And closing the best one).

Bully offers don’t wait. They come on early and say, “here is a great offer, but it is only valid today. Take it or leave it”.

Bully.

Preempting the process, however unfair to buyers the process already is.

In theory, the bully offer should be so good that the home seller simply cannot turn it down. In practice, I have my doubts (and anecdotal evidence to back them up).

Also, upon receiving notice of a bully offer, the first thing the listing realtor does is to notify every other agent who has shown or is about to show the property, thus encouraging more offers.

This happened to me twice the other day. Here is an example:

Hi All,

This morning at 9:01am I received a preemptive offer. The offer is not my own or from my Brokerage. The Sellers have now signed a second seller direction rescinding the first seller direction from the original listing. We will be dealing with this offer at noon today. If your clients are interested in making an offer please email it to me by 11:45am this morning. The sellers are out of town and I’ll be presenting the offers via email and phone conversation with them.

I’ll send out another update just after 11:45 this morning.

Frankly the whole thing does not make any sense to me.

 

Market price

Let’s define market price. The price of real estate is set by the market. The market price of a home is what it just sold for.

 

The Buyer’s Perspective

This blog most often talks about things from the buyer’s perspective. Home buyers tend to fall into two camps when it comes to Bully Offers.

Camp One is trying to take the house off the market before offer night. They want the house and they don’t want to compete. Buyers ask me to ask about bully offers, whether they will be accept or not and sometimes I do bully offering and sometimes they are successful (at least successful at moving bid-night ahead a few days).

Here are two truths

1) The biggest fear most buyers have is over-paying for a place. They fear that prices are going to go down and they will be left at the high water mark.

They won’t.

House prices are sticky. They go up easily. And then they hang up there weightlessly, just hanging and hanging and hanging until maybe someday…

2) The second biggest fear that most buyers have is that they will miss out again and again as prices rise beyond reach.

Camp Two of buyers in regard to Bully Offers are those who wonder why, oh why would a seller agree to accept a bully offer? These buyers know intuitively that home sellers will not do as well. These seller’s won’t get as much as they otherwise likely would have on offer night. How could they? They market sets the price and they are shutting part of the market out.

Also, theses sellers have broken the rules that they themselves have established. What’s up with that?

The Agent’s Perspective

I appreciate agents that say right in the listing’s Realtor notes, “Preemptive offers will not be considered.” When I’m working with home sellers I always tell them not to consider bully offers. I think there is a right way and a wrong way to do things and I cannot see any ethical reason why an agent would accept bully offers. The client’s interest is suppose to be ahead of that of their agent and their agent’s brokerage.

 

The Seller’s Perspective

The seller and his agent went over the comparables when they set the list price and suddenly, here is an offer for maybe 35% over asking price. That is an “oh wow” moment. That is tempting. That is a bird in the hand. That I think why seller’s take Bully Offers.

To be fair to sellers, they are under a lot of pressure too. They have somewhere to go and deadlines and budgets to meet. Nothing is absolute in real estate either. Sometimes Bully Offers are so good they will blow your socks off.

 

Conclusion

I think buyers have better information than sellers. Buyers have been at it longer, and have likely lost out on previous offers. Although it is a seller’s market, successful buyers are better prepared to win and I think some home buyers win by making an offer the seller thinks he simply cannot refuse.

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