Anarchy, Betrayal, Tragedy …
No, I’m not talking about the hit TV series Game of Thrones. I’m talking about Real Estate!
As demand continues to outpace supply here in Halifax, I’ve observed a number of interesting evolutions in our market place – one being the “Bully Offer”. Bully offers aren’t new, and they’ve actually been happening all across the country in hot real estate markets, such as Vancouver and Toronto. Bully offers are new to Halifax – And will likely become a trend if Sellers continue to choose to have “set offer dates”, and inventory remains low.
So, why would a seller set an offer date?
Well, when a seller knows they have a high-demand property, they’ll put it on the market with a set offer date, usually about a week after the list date. The logic is simple: if they list ‘without’ an offer date, someone will buy it before many of the other interested buyers have had a chance to view it themselves.
It’s in the seller’s interest for all interested buyers to see the property. Why? Because it’s only fair to the buyers, and yes, to you cynics reading this, because it’ll likely result in a higher selling price for the seller. If there are 5 interested buyers, they will all have a different opinion of the property value. But, can you guess which buyer the seller wants to work with?
“A bully offer is when a buyer says, I’m skipping to the front of the line and submitting an offer today.”
Whether or not a bully offer is effective depends on the seller, the strength of the bully offer, and timing. The most effective bully offers have the three following characteristics:
1. The offer is submitted within 24 hours of the property being is listed. The fewer the number of buyers who’ve viewed the property, the better for the buyer with the bully offer. Very few buyers would submit an offer on a property without having actually viewed it.
2. The offer must be strong on price and have no conditions. The seller and listing agent may list the property for $500,000, while knowing the value is actually around $550,000 and expect a selling price in that ballpark. If the bully comes in at $550,000, it’s unlikely they’ll accept. If it comes in at $570,000 however, the seller will likely accept the offer.
3. The buyer’s agent must convince the seller and their agent that the buyer submitting the bully will absolutely not participate on the offer date — this is the seller’s only chance to entertain their offer. This puts the listing agent and seller in a pickle. Should they turn down the offer and risk settling for a lower offer on the set offer date? If the listing agent advises the seller to turn down the offer, it’s their neck on the line if the seller ultimately gets a lower price on offer night.
It’s worth noting that at least 50% of the time, the buyer is bluffing and would participate on the set offer date.
If the buyer isn’t going to get a good deal, why even bother with a bully? Here are the top four reasons:
1. There’s a greater chance the buyer will secure the property. For buyers who have submitted offers and lost out to other buyers many times before, this is a very attractive reason — even if it means paying a above market value.
2. The value of a property isn’t an exact science. Ask five appraisers the value of a property and they’ll likely give you five different numbers, within about a 2% – 4% range. In other words, the buyer submitting the bully offer may actually pay less than what the property would sell for on the offer date, with many other buyers competing. This is exactly why bullies would give sellers and their agents such anxiety. They don’t know if they’re accepting the best offer, but terrified of the prospect of losing out if it is in fact the best offer.
3. If you asked ten buyers who have submitted a bully offer why they were willing to risk overpaying, I’m guessing eight of them would tell you that in a hot sellers’ market, ‘market value’ is quickly changing, and not in their favour. So they may have overpaid in April, but by July standards, they got a good deal.
4. Perhaps less important than the other reasons, but if successful, simply expediting the process and allowing the buyer to move on with their life, rather than being in limbo for a week before the set offer date, is attractive to a lot of people — especially those who have already lost a couple times.
When it comes to hot topics like these, every Agent has their own philosophies. Personally, if I know with certainty my seller client will receive more than four or five offers, I note explicitly on the listing that we will not entertain any “pre-emptive” offers. This way, buyers won’t waste their time submitting a bully offer and will instead submit their offer with all the other interested buyers on the offer date.
If the market is only moderately favouring sellers and it’s not clear if we’ll receive more than 1 offer, my recommendation is usually that we be open to looking at bully offers.
“Your first Offer is your best Offer”.
When representing buyers in a strong sellers’ market, I always try to discuss all of the options available, in terms of strategy – that way were prepared when the time is right. Whether it’s the right course of action to talk about a bully offer, or not, really depends on the circumstances. One must weight all the pros and cons before deciding if it’s in their interest to participate on the offer date or in advance.
This is a lot to process, however, there’s a lot more to the process! If you have questions on Buying or Selling in Halifax, please connect: 902.880.5555. or email@example.com.
In any-case, I hope this has given you a good primer on whats to come here in Halifax!