Over the last couple of months I have seen a substantial increase in “bully bids”. A bully bid is otherwise known as a preemptive offer on a home accepting offers on a specified date. Holding back offers or specifying a particular offer date has been common practice in Toronto for the past decade or so.
Now, more buyers are using the preemptive offer as a strategy to gain leverage in a seller’s market. It doesn’t always work, but it’s something that both buyers and sellers need to be aware when they’re “in the market”.
As an agent, I have been on both sides of bully bids (representing buyers who wish to aggressively go after a property as well as representing the sellers end of the transaction when would be buyers are trying to “bully” their way to the front of the line).
When you are selling your home, you need to be aware that you may get an offer before the offer acceptance date. You do need to have a conversation with your real estate agent to make sure you discuss this scenario and how to re-act to such an offer. Your agent should also give you an expected sale price (usually a range betweeen 1-2%) and an approximate number of offers that you might expect. Having myself represented sellers countless times on offer nights, it’s more of an art than a science in predicting the number of offers, but having a sense of what to expect is good if you’re presented with a bully offer.
My advice to sellers is that’s it’s always better to wait until the offer date than to accept a preemptive offer. The only exception to that rule is of course if the offer is “too good to be true” and significantly better than the “market” value.
On the flip side, if you’re a buyer you need to be aware of the bully bid for two reasons. Firstly, if you a home is newly listed on MLS and is holding back offers until the following week, don’t wait to see the home. Why? It might by sold the time the weekend rolls around. The chances are slim, but definitely possible. You don’t want regret about not seeing that great house that sold before you even got a chance to see it. New house listings typically come out on Tuesdays, Wednesdays or Thursdays and I always recommend to clients to see the home within the first day or two of being on the market.
The second reason - if you do find that “perfect home” you should at the very least consider a pre-emptive offer. I am not suggesting you should bully bid, but at the very least you should consider the option. In this case you would have to prepare a very strong offer and give the sellers only a few hours to consider the offer. It does throw the listing agent off their game and they’ll scramble to try to drum up competing offers. This strategy doesn’t always work and there are definitely risks involved in doing this, but as buyer should be aware this as a possible option.
This real estate market is still very much a seller’s market and you need to be aware of the different options available to you when competing with other buyers and sellers.
I was in a multiple offer last week and shared this story with my client and thought it would make it would make for an interesting (and relevant) post this week.
When sellers are in a position to accept more than one offer, price often becomes the differentiating factor. While price is extremely important, it’s not the only consideration…
Last year my wife and I had listed one of our income properties for sale in the Beaches neighbourhood and were reviewing offers a week later. Fast forward to offer night and we 4 offers to review (3 of which I considered in the same relative ballpark).
All 3 of these offers had our desired closing date. Here is what the offers looked like:
Offer # 1 was for $462,000 with no conditions, $25k deposit.
Offer # 2 was for $480,000 with a financing condition, $10k deposit.
Offer # 3 was for $470,000 with no conditions, $30k deposit.
At first glance, Offer #2 had the highest price however I asked their agent to explain why they were including a financing condition. The agent said his client’s plans were to live in the home and he was “rock solid” and he wouldn’t have any problems with financing.
“Ok”, I responded. “If financing wasn’t going to be a problem, then why include the condition?”
The agent explained that his Banker had recommended to include a financing condition in all offers that were to be presented.
I thanked him and asked him for a few minutes for my wife and I to make a final decision.
While it was awfully tempting to take the highest priced offer ($10,000 over the second highest offer) – for a split second I thought of what I could do with that extra $10,000 if the deal were to go through. Then, I asked myself : what would I advise my client to do in this situation?
The answer was an easy one – accept a firm offer, even if it isn’t the highest priced offer. And that’s exactly what we did.
I took agent of Offer # 2 and told him we’d accept a lower offer without any conditions and gave him the following advice: Your client needs to find a new Banker. Find one that will give him a full pre-approval so he can be competitive in the next multiple offer scenario he finds himself in. The agent thanked me for the advice and went on his way.
Fast-forward 3 weeks later that very same agent gave me a call. The good news is that they got an accepted offer (in multiple offers) and was looking for the name of a of a mortgage broker to help his client. He was also looking for some friendly realtor-to-realtor advice, which I happily gave as well.
Anyhow, the story didn’t end so well for this realtor’s client – long story short is he couldn’t qualify for the mortgage and had to walk away from this great home. He simply didn’t have enough stable income to qualify for the mortgage.
For a second, I felt bad that things didn’t work out for this guy, but at the end of the day there were a couple of important lessons to be learned from these series of events. First, if you’re in the market to buy a home – contact your mortgage broker first – they’re a fantastic resource and will give you options before you start house hunting. As a seller, the second lesson was – don’t be greedy – if you’re in the fortunate position to have more than one offer on the table, always give the most weight with the unconditional offer. An unconditional offer shows that they have done their homework ahead of time and if the offer comes with a healthy deposit – this only confirms their commitment to the purchase. As a seller, you want piece of mind knowing you can focus on your next move.
I had an interesting experience last year with a home I sold for my clients who lived in a nice Central Toronto neighbourhood. My clients were expecting a baby and wanted to move into a larger home. They lived on a choice street and I knew the interest in the home would be high. We decided to list the home for sale on the Wednesday and review offers on the following Tuesday evening.
As anticipated, there was significant amount of traffic and based on conversations with a few buyer agents, I expected a few offers on the following Tuesday.
Fast forward to Tuesday, we had 7 offers on the table for my clients’ consideration. My clients were obviously ecstatic. Getting that many offers to the table is more of an art than a science, something I have learned through facilitating countless offer presentations.
My clients understood that the more offers they received that night, should translate into a higher the sale price.
It’s funny… Usually, before the offers are being presented, Agents often would often ask: “Why are they selling?” I would always repeat the same answer and my answer would almost sound rehearsed: “they are looking to move into a larger home”. Rarely would I get any additional probing questions on this topic.
Interestingly though, that night one agent took a completely different approach and asked me: “Is this sale a result of a positive occurrence or negative occurrence?” I was a little surprised by her question, but it was the first time I got this kind of question before. I told her that they’re planning on having another child and needed a home with an additional bedroom. It’s a brilliant way of asking the same question: Why are they selling?
Fast forward a few hours later, when this same Agent presented her offer... Because I had shared with her that this move was a “positive one”, she was very upbeat, positive and full of energy. She did a wonderful job at presenting the offer in the appropriate tone, her offer stood out the most against all of the other offers. In the end my clients ended up accepting her client’s offer.
It’s interesting, because if I had told this same Agent my clients were getting a divorce and this is was the reason why they are selling, I am sure her presentation style would have been much different.
So now before I present any offer, I always ask the same question, “Is this sale a result of a positive occurrence or a negative occurrence?” Some would argue it’s the same as asking: “Why are they selling”, although I believe it provides a little more insight than that. Sometimes, that insight might be enough to distinguish your offer from being accepted or rejected. In this competitive market, that simple question might be enough to give you that edge.
I was recently part of a very interesting negotiation on an offer to purchase for a condo in the West-end of Toronto. I was representing the buyers in this particular transaction and the seller’s agent – Gino – requested that we negotiate the entire offer by SMS Text Messaging. No, I am not kidding.
This process was a very interesting experience and definitely eye opening – something that I wanted to share with you today.
Now, I consider myself a person who’s very comfortable with technology, yet I have never negotiated an offer this way. Call me old school, but I really feel that negotiations of any kind should be done in person or at the very least over the telephone.
There is an important “human” element to negotiations that gets lost when transmitting electronic messages on our mobile devices. As a matter of fact, depending on the circumstances, negotiating this way can potentially put you at a disadvantage with the other party. Let me explain.
So, when Gino the listing agent, asked me if I was “text-friendly” I had no idea he was asking me to negotiate this way. I originally requested to Gino that I meet him and his sellers in person so I can highlight the benefits of our offer, but Gino declined. I was stunned to tell you the truth, as I do think it hurt his clients more than it helped.
I had a good discussion with Gino earlier that day and got some very valuable information about why the sellers were selling and what their personal situation was. Interestingly, Gino said they received an offer last week that fell apart at the last minute and divulged all of the juicy details of the offer they were going to accept. I learned that the closing date was extremely important to them and what price they previously accepted. With this valuable information I spoke with my clients and gave them a good picture of the seller’s situation. We agreed to give them the closing they wanted and from a strategic perspective gave them our “best offer” we were prepared to give them, which coincidentally was several thousand less than they previously accepted.
So at Gino’s request I emailed the offer and waited for him to arrive at his seller’s home.
Not too long thereafter I got a text from Gino that read: “Reviewed the offer. Any movement on the price?”
“No, Gino. As I said before this is the best my clients are prepared to do right now.”
There was a pause. About 5 minutes later, I got another buzz on my phone. It’s Gino again. He asks: “How about the conditions, can we reduce the number of days to 3?”
I reply: “No, their bank has specifically requested 5 days condition period. Let’s stick to that.”
Gino comes back several minutes later and says: “About the price, it’s lower than my clients really want.”
I reply: “Ok. This is my clients best offer.”
At this point we offered $261,500 which is about $5,000 less than they previously accepted. A week has gone by and I know they need to close by the end of June and their window of getting this closing date is shrinking fast. Our offer was a good one and slightly below market value based on recent sales in the building.
Gino comes back at $264,000.
“Sorry Gino. That won’t work.” I quickly texted.
Another 10 minutes goes by and my phone buzzes again. “Ok, my clients are willing to do $262,000 – they really like the sound of that number.”
In my head I am thinking, what does the sound of a number have to do with anything?? Realizing that’s just an expression I reply: “Not going to work. As I said before this is our best offer. Your clients can take it as is or wait for another one”.
I knew there some risk that they could decline our offer and wait for another, but for $500.00 difference and understanding that we had their preferred closing date, they would be silly not to take our offer.
At this point, I don’t hear from Gino for a good 45 minutes. I check to see if my phone is still operational. Check. Full signal strength. Check. Battery at 80%. Check.
Not to long thereafter Gino texted: “We have a deal!”
I then spoke with my clients and they were thrilled about their new home. There were also somewhat surprised that they accepted our offer without any changes whatsoever.
The next day I called Gino to give him an update with how things are progressing on our end, and I asked him: “Out of curiosity, why did you want to negotiate the offer by SMS Text Message?” He replied, it’s more speedy and efficient. While that may be true to some extent, I told him that I would have preferred to meet the sellers in person and present our offer this way.
I couldn’t help but think that Gino didn’t do his clients any favours by negotiating this way. He knew virtually nothing about my clients (he never asked) and was more focused at getting the deal done quickly than negotiating a better offer for his clients. Very rarely is there no give-and-take in any contract. Granted, we were able to determine that the closing date was of utmost importance to them – and we gave them that. But still, I can’t help but wonder if the outcome would have been different if we didn’t negotiate by texting back and forth.
Technology makes it so easy to communicate with others quickly and efficiently, however I do think we rely on technology a little too much to the detriment of the human element. Sometimes the old fashioned way might actually be the better way.
It’s fair to say that if you’re buying a house in Toronto today, you are in all likelihood going to be entering into a multiple offer situation. There is just not enough “quality” inventory to satisfy demand… and that is the reality of Toronto real estate today.
Most buyers assume that the highest price always wins the bidding war. That might be true in many cases, however recently I was part of a very interesting negotiation in a multiple offer that demonstrated that price isn’t the only motivator for sellers… Here is what transpired.
I was working with a really nice couple Tom and Anna. They have two great kids, and wanted to move to a bigger house. Being in a good school district was important to them so we narrowed our search to a few select Toronto neighbourhoods. I showed them this nice four bedroom home, close to their school of choice and they instantly fell in love with the house. The problem was though, it was at the top end of their budget… and the house was priced for a bidding war. I could tell Tom and Anna were a little uncomfortable spending much more than the asking price, so later that night we sat down and put together a sound plan for our offer. I really wanted Tom and Anna to stay within their comfort zone and not get carried away with their offer price.
Fast forward to offer night, I was one of two competing offers. I called the listing agent ahead of time to get the rules and how the bidding process was going to work. The listing agent was well respected and a long time agent in the community and said that both offers would only have one shot to present their offer and the seller would choose the best offer.
Anytime I am in a multiple offer situation, I always want to be there in person to present the offer. I want to be able to look at the sellers in the eye and tell my client’s story, why they love the house and why they should accept our offer.
Deep down inside I knew there was a good chance the other offer had a higher price. So, when it was my turn to present our offer, I decided to highlight the “emotional” aspects our offer.
You see, the people who were selling this house… are my clients… only 20 years ago. You can tell from the photos on the wall, this has been their family home for many years with many happy family memories. This home is where their kids learned to ride their bikes, and had hours of fun playing basketball in the driveway… Their kids are now all grown up and out of the house. I can appreciate emotionally speaking, selling a home for the past twenty years might be a difficult one, so I was hoping my client’s story would resonate with them.
I proceeded to tell them how wonderful my clients were and how this would be their family home, just like theirs was for the past twenty years. Their kids are about the same age as theirs were when they moved in…
I could tell that my client’s story struck a cord with the sellers. They loved the idea that a “younger version” of them was buying the house. We proceeded to review our offer and I highlighted many of the positive features. When they looked at the price, I could also tell from their reaction that we were in second position. They wanted our offer so badly to be higher than the other one.
After reviewing the offer, they wanted a couple of minutes to discuss both offers and let us know their final decision. I waited in a separate meeting room, which felt like an eternity. Over twenty minutes go by and the listing agent comes into the meeting room to give me an update... She says: “They’re still mulling it over. They really like you and your clients. Although the other offer is quite a bit higher than yours.”
I was surprised they were taking this long to decide. That meant we still had a shot! I asked the agent if I could go back and say a few final words to the sellers (to help push our offer over the top). She said her sellers really wanted to discuss it privately.
Interestingly the listing agent added: “You’re good. The way you presented that offer was great. It seemed so genuine and sincere.” I replied: “Thank you, I appreciate that… it was genuine and sincere! I really meant everything I said in there.”
The listing agent’s phone buzzes and goes back to see her sellers.
Another 10 minutes go by and the listing agent comes to the meeting room where I am sitting and says: “Great offer. However the sellers are going to accept the other offer.”
My clients were disappointed they didn’t get this house. But, they did make their best offer and were ok with the outcome.
Later that day, I saw the sale price posted… the other offer was almost $30k above ours! I was shocked! I was shocked that the sellers were even considering our offer… $30k is a pretty big difference in my mind. Even though we didn’t get our offer accepted, it just goes to show you sometimes the intangibles can make a difference. Don’t always assume that price is the difference. As in this case, an important part of the decision is the emotional side of the equation. Sellers often have strong emotional ties to their home and knowing that someone feels the same way about their home as they do can go a long way.
So, you’re probably wondering what happened with Tom and Anna? Three weeks later, we found another great home and this time their offer was accepted!