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 recently sat down with a real estate agent who’s new to the business and we were talking about negotiation strategies and some recent interactions I had with other agents. Before I delve into the topic further, I do have a confession to make: I love to negotiate... It’s one of my favorite parts of the business. Not to mention that I’ve had many interesting negotiating tales along the way (some of them shared on this blog!).
So, the question came up as to when do you start negotiating with the other party? I really believe you start negotiating when you have your first interaction with the buying or selling agent. If you start negotiating when the offer is just in front of you, it’s too late to start negotiating in my opinion. Allow me to explain.
Before I write up an offer, I’ll always have a conversation with the selling agent to get as much information I can about the property, the seller and their situation. I call this the “posturing conversation”. I have a set of questions that I always ask, and that gives me a good sense of what their motivation levels are like and what they would be looking for in an offer. Once I’ve had this conversation with the agent, I relay the information to my clients and give them my read on the situation. At that point, I listen for my client’s feedback on how they would like to proceed.
First impressions are critical in any negotiations. When I represent buyers, I don’t like to reveal anything about my clients until an offer is presented. The reason being, I only want to show our intentions when it is appropriate to do so. For instance, if we’re viewing an open house, I’ll tell my clients that they shouldn’t say anything during the viewing since the listing agent is always within an ear-shot of visitors. There is a possibility they may use what we say against us during a negotiation. The same applies if you’re the selling agent at an open house… what you reveal to potential buyers will have material impact on buyers perception and will ultimately be reflected in any offer that might come.
In any negotiation, there will be some “give and take”. In the end, you don’t want to “give” more than you have to. Be aware that the negotiations often begin before any offer is even drawn on paper.
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.