What is a bully offer?
In real estate, especially in a sellers market you’ll hear the term bully offer. In recent years, due to the surge in the anti- bully movement in schools, it’s often been referred to as a “pre-emptive” offer. Regardless of what you call it, a bully offer is an offer made in advance of an offer date, where a seller is holding offers.
Here’s the scenario:
You see a house that you really love. It has all the colours, the layout is perfect, it’s within your budget and your ideal location. But they’re holding offers. Crap. You and everyone else you know will be looking at this house for the next week and twenty people will put offers and it will likely sell way above your budget.
Unless you submit a bully offer…
Bully offers are designed to jump the queue. It gives the seller something in advance of that offer day that they find too good to be true- and they accept it. Bully offers prevent you from competing with most people on offer day.
But there are some rules of engagement with bully offers
As Guelph real estate agents, one of the key things we advise our client in negotiation is to consider the other parties position (in this case, the seller). They’ve worked hard to get their house ready to sell. It’s been stressful. It’s been chaotic. And they know it’s a sellers market, where people will likely be lined up to buy the house.
But now they’ve done the work, the house is on the market and they know that whenever the offer day is, their home will likely be sold. So, as the buyer, do you think a seller is going to accept a bully offer that has conditions of inspection and financing for 5 days? Of course not.
A bully offer shouldn’t have offer conditions (or contingencies for US readers)
A bully offer cannot contain conditions if the buyer is serious about buying the house. Think about this: A seller puts their house on the market on Thursday and reviewing offers on Tuesday. On Friday, you (the buyers) put in a bully offer but don’t have your finances in order so you ask for a 5 business day condition on financing.
This doesn’t make any sense, because if the seller was to accept your conditional offer, they would now miss out on any offers they were receiving on Tuesday that may be condition- free. And besides, what happens if you, as the buyer, can’t get the right mortgage sorted out with your mortgage broker?
The way conditions are written, buyers can walk away for any reason related to financing without penalty. This could even mean they walk away just because they couldn’t get the best mortgage rate
The house would go back on the market and the seller would lose all leverage. Their holding offer strategy is completely ruined. They would have been better to just reject you and wait until offer day.
A bully offer has to be equal to, or better than what the seller would get on offer day
If a seller receives a bully offer in advance of their set offer day, they have to weigh the risk: do they accept your offer and move on? Or do they think that perhaps there has been a lot of interest and it may be in their best interest to wait it out until offer day with the hopes of receiving something better?
Many buyers think that bully offers may save them money. But that’s not what a bully offer is. In fact, it’s the opposite. You need to give the seller a premium to what they think they may get on offer day as an incentive to accept your offer. Otherwise, what’s the point of even presenting a bully offer?
What’s the advantage of a seller to review a bully offer?
As mentioned above, it’s stressful and quite inconvenient to sell your home. In fact, many consider selling and moving among the most stressful times in a persons life.
A seller has to prepare to put their house on the market for 7 days. During that time, they deal with having to leave on a moments notice for a showing and keeping the house impeccable the entire time. Strangers walking through the house, traffic for your neighbours. It’s a lot to take on.
It’s possible that the seller is thinking “perhaps an amazing offer comes in early! I can just be done, sell my house and I can move on with life!”.
Does a seller have to review a bully offer?
No. Just because a buyer wants to submit a bully offer doesn’t mean a seller has to review it. The buyers Realtor should do a bit of pre-work here to figure out the sellers position. There’s no point in even discussing a pre-emptive offer if the seller has given clear instructions that they won’t review it.
In Ontario, there is a form 244- Sellers Direction. This form outlines just this- the sellers direction on offers. Sometimes, the seller will outright say on this form: “pre-emptive offers will not be considered”.
As a buyer, what do I do If I want to submit a bully offer?
Talk to your Realtor. They should be able to guide you in the right direction so that you can submit an effective bully offer. Remember: a seller doesn’t have to accept it, so if you present it, you’ve just played your hand to them about how interested you are. There is some risk here that your Guelph Realtor should warn you about. If you have further questions, feel free to contact Beth and Ryan