What’s a bully offer? And how can it benefit you, as a buyer or seller? A lot of properties being sold in the GTA, condos and houses alike, have had offer dates for the past year or so. The reason that this is possible is simple – demand is higher than supply, thus creating a seller’s market. The strategy for the listing agent and the seller is to list the property slightly below market value or at market value and hold off looking at offers for about a week. This allows as many buyers as possible to see the property and increases the chances of a bidding war for the seller. When a property is listed with an offer date, a large percentage of them may choose to accept a pre-emptive or bully offer.
SELLER: When should you accept a bully offer?
The main risk of taking a pre-emptive offer as a seller is that you are leaving money on the table by not waiting until the offer date. In my experience the following 4 criteria can help you make the right decision:
Showings are slow
I think this is the most important factor of all. If you are getting a lot of showings on your property, even if you get a really high-priced bully offer with no conditions, it makes sense to take a risk and wait for the offer date. If, on the other hand, you are experiencing few showings and/or the market may be turning to a more balanced market, then you definitely will want to consider a good bully offer.
A decent irrevocable time
Bully offers often come with a short irrevocable time. A good buyers agent won’t give you 24 or 48 hours on the offer as they are trying to avoid competition. If you hire a good and experienced listing agent, he/she will know how to get a reasonable amount of time to work with the offer. The key is to ensure that every other agent and buyer that has visited the property still has an opportunity to present an offer.
The price is right
Typically, when you are setting an offer date you list the property below market value. The price has to be over the asking offer price and in line with your expectations and market conditions.
The offer is firm
You don’t want to be stuck for 3 to 5 business days off the market while waiting for the buyer to get financing, inspect the property, or check the status certificate. The expectation for a bully offer is that it is firm with no conditions.
BUYER: Benefits of making a bully offer
In an extremely hot housing market, buyers are facing an uphill battle. The obvious advantage of making a bully offer is that you are either not competing or that the competition is not as fierce as it could be at the offer date. You have to ensure that you and your agent know the market that you are purchasing in inside and out. If the market has cooled off or if there is a sudden increase in inventory, you may want to wait for things to play out at the offer date. There may be fewer offers than the seller anticipated. The seller is not under any obligation to accept a bully offer, but if you do your due diligence early and act quickly, you may get ahead of the competition.
How to make your bully offer successful
Buying a property in an extreme sellers’ market can be very difficult. It takes patience, commitment, flexibility, and know-how to succeed. The following are some tips I commonly use with my clients to help them achieve their goals.
Be quick to see the property after it’s listed, before most competitors.
You should see the property as soon as possible. If it’s listed today, try to see it on the same day. This way if you want to make a bully offer, few others have seen it reducing the potential competition. An early viewing also allows you the opportunity to do your due diligence, like a home inspection before making an offer.
Make a strong offer with a quick irrevocable
“Irrevocable” means the time during which your offer cannot be changed or revoked. When making a bully offer, you have to make a strong offer with a quick irrevocable. This means that the offer price must be high – this is not the time to try to score a bargain – and that the sellers are given a short time to consider it. The purpose of this strategy is to lessen the possibility of other offers.
Make the offer firm
Do your due diligence way before you start considering making a bully offer on a property. Have your financing 100% in order, and explain to your mortgage broker that you most likely won’t be able to include a financing condition in your offer to make sure that you can make it work. A bully offer with any conditions has very little chance of success.
Have a solid deposit
A 5% deposit in the GTA is the norm. Try to make the deposit as strong as possible. Another quick tip – have the deposit along with the offer. It can make a big difference that the seller knows you are fully committed to this purchase.