When the real estate market is hot, multiple offer situations and bidding wars are prevalent. It’s not uncommon for buyers to repeatedly find themselves in bidding wars, which can become tiresome and frustrating if you continually lose to another bidder. One way to potentially avoid a multiple-offer situation entirely is to make the seller a “bully offer” before other offers are reviewed.
Let’s take a closer look at bully offers and the perks and drawbacks they come with for both buyers and sellers.
Key Points
- A bully offer is presented to the seller before other offers are reviewed during a set offer presentation.
- The buyer’s goal is to encourage the seller to accept an attractive offer without competing with other offers.
- Buyers who make a bully offer may come out as the winner but are at risk of paying more than other bidders
- Sellers may be able to secure a quick sale with a bully offer but are at risk of accepting an offer that may be lower than what other prospective buyers were offering.
What Is A Bully Offer?
Also known as a ‘preemptive’ offer, a bully offer is one that a buyer makes to grab the seller’s attention before other offers are entertained. This type of offer is typically a very large one that’s made on a listing soon after it’s been put on the market and expires before the time and date of the offer presentation.
Bully offers are made in a hot seller’s market when sellers set a date and time to accept multiple offers. Sellers may do this to entice multiple offers and create a bidding war in hopes of driving up interest and the sale price. In this situation, the seller will have time to explore each offer and compare them before choosing which one to accept. However, a bully offer can disrupt this scenario.
When a bully offer comes in before the offer presentation, the seller can either accept this offer and begin negotiations, or refuse it and carry out the original plan to wait for a bidding war among other prospective buyers.
Main Features Of A Bully Offer
There are several things that set preemptive bully offers apart from other real estate transactions, including the following:
- Offer Made Shortly After Listing. Generally, most homebuyers will send their bully offer to the seller within the first few hours or days of the property being listed. This helps them get ahead of as many other potential buyers as possible and lets the seller know they’re serious.
- Above Asking Price. The majority of homebuyers will also make their bully offers well over the seller’s initial price tag to hook them. If the home offer is enticing enough, the seller might forgo the future auction process altogether, which is the buyer’s ultimate goal with a bully offer.
- Large Deposit. Along with the very high offer price, bully offers also offer a sizeable home deposit amount. Further, the deposit cheque will typically accompany the offer, so the seller has it in hand.
- Clean Offer. It’s common for bully offers to be ‘clean’, which means no conditions. Alternatively, there may be very few conditions to help make the offer more attractive to the seller.
- Quick Response Required. Another common pressure tactic that gets added to a preemptive bully offer is a time constraint of several hours or days before it expires. This ensures that other buyers won’t have as much time to make offers.
How Does A Bully Offer Work?
A bully offer scenario works as follows:
Step 1. Arrange A Visit To The Home Right Away
If you see a home you love, your agent will schedule a viewing as soon as possible before other buyers have a chance to see the home.
Step 2. Arrange For An Inspection Before Offer Presentation
To minimize your risk, consider asking the seller if you can have a professional home inspector inspect the property before the offer presentation. Keep in mind, however, that this isn’t always possible, as sellers may not be willing to allow an early inspection. With so many other interested buyers, sellers may have no incentive to allow for such perks.
Step 3. Make An Offer Before The Offer Presentation
The listing will include details about when the seller will be entertaining offers and the deadline for submitting offers. Your goal is to make your offer well before the presentation date (not just a day or two beforehand) to try to get the seller to accept your offer before looking at others. The sooner the better, otherwise the seller may just want to wait a day or two for the offer date.
Step 4. Seller Makes Their Decision
The seller can either accept your offer or reject it and continue on with their original plan of waiting until the offer presentation to see what other offers they get.
Bully Offer: Example Scenario
Here’s a basic example so that you know how the bully offer process normally works:
- You find a desirable home selling for $400,000, so you get your real estate agent to arrange a visit.
- The seller is set to start accepting offers on Monday at 9:00 am.
- To get ahead of the competition, you make the seller a bully offer of $450,000 within a couple of hours of visiting the house and a couple of days before they start accepting offers.
- The realtor also tells the seller that your bully offer will expire that specific day at midnight, so they’ll only have a few hours to think it over.
- If the seller accepts your offer, you can proceed with finalizing the deal.
- If the seller rejects your offer, they will continue with the offer presentation.
How Much Higher Are Bully Offer Prices Than The Listing Price?
There is no specific number or rule about how much higher a bully offer should be over the asking price. That said, bully offers should be significantly higher to convince the seller to accept the offer before having the chance to look at others. The exact number depends on the listing price, the location, comparable sales in the area, and the temperature of the current housing.
Average Home Prices Across Canada
Pros And Cons Of A Bully Offer For Buyers
Buyers should also consider the upsides and downsides of making a bully offer:
Pros
Some benefits of a bully offer for buyers include the following:
- Avoid Competition. If you’re the one making the bully offer, you can get miles ahead of other buyers by giving the seller an enticing bid before they can.
- Secure A Desirable Home. Making a bully offer before the seller looks at other offers can help a buyer snag a highly desirable property that otherwise may be lost to another competing buyer.
Cons
Consider the following downsides of making a bully offer:
- Risk of Spending Too Much. Making a hasty bully offer can cause you to pay far too much for a home that’s not worth it, especially if no inspection is done.
- Serious Issues With The House. Since you need to submit a bully offer immediately, you likely will not have the chance to have the house inspected. This means you could end up buying a house with serious issues.
Buyers: Should You Make A Bully Offer When Buying A Home?
As a prospective buyer, making a bully offer can help you score the home of your dreams before others have a chance to bid on it. Not to mention, you won’t have the pressure of a possible bidding war looming over you.
That said, if you’re thinking about making a preemptive bully offer on a home, make sure to go in prepared. Consider the following:
Financing
Since a bully offer is typically void of conditions — including the mortgage financing condition — you won’t have a chance to solidify your ability to get final mortgage approval. Don’t make a bully offer unless you’re confident in your ability to get approved for a mortgage. Also, keep in mind that a mortgage preapproval is not a guarantee of what you’ll actually get approved for.
No Home Inspection
A home might look fantastic in the pictures and during a visit, but you never know what could happen during the inspection. So, if you make a bully offer without putting in a clause that lets you walk away from the offer, you could be stuck with an expensive fix or get denied for a mortgage altogether.
Pros And Cons Of A Bully Offer For Sellers
Bully offers come with some notable benefits and drawbacks that you should be aware of before you accept one.
Pros
Some perks of a bully offer for sellers include the following:
- Zero Conditions. In many cases, you won’t have to deal with home inspections, Status Certificate conditions, or financing processes to finalize a deal on your home.
- You May Get A Higher Price. One of the best things about a bully offer is that the buyer may offer you a better price for your home than you initially asked.
- Sell Quickly. Rather than go through the whole multiple-offer situation, you can snag a sale as quickly as a few hours after listing your home for sale.
Cons
Along with the benefits of a bully offer come the downsides:
- Risk of Not Knowing. If you panic and accept a bully offer, you’ll never know if your home would’ve gone for a better price if it had stayed on the market longer.
- Stress Of A Short Irrevocable Period. The short irrevocable period that typically accompanies a bully offer can add anxiety to the process. Since you need to make a decision very quickly, this may add more stress to an already stressful situation.
Sellers: When To Accept A Bully Offer
Strictly speaking, there’s no clear right or wrong answer when it comes to accepting or denying a preemptive bully offer. It all depends on the circumstances of the real estate deal that’s happening, as well as what price you’re looking to get for your home.
Then again, since there are occasions when the process can work in your favour as a seller, here are some key things to consider before you accept a bully offer in Canada:
The Offer Is Well Above The Listing Price
With bully offers, the biggest factor for most sellers is how much money they can get for their property. If you receive an appealing offer, this is where an experienced realtor and a bit of negotiation can be quite useful. Even though the offer may be far above the asking price, you never know if one of the offers that you would have otherwise entertained during the offer presentation is even higher.
The Market Is Showing Signs Of Cooling
If the real estate market in your area is starting to cool down, you and your agent may be concerned that you won’t attract as many offers by the review date as you would have hoped. If this is a possibility, then perhaps entertaining a bully offer may be worthwhile.
You’re Highly Motivated To Sell
If you need to sell your home as soon as possible, then you might welcome a bully offer. No matter what your reason may be to need to sell quickly, a bully offer can present a speedy way to sell and close your home.
The Bully Offer Is ‘Clean’
If the bully offer is void of conditions, then accepting the offer will mean a firm sale. That means you won’t have to spend time waiting for conditions to be met before your home is finally considered sold. This may be very attractive to you if you’re looking for a quick yet profitable sale.
Sellers: When To Decline A Bully Offer
On the other hand, there are plenty of reasons why you might want to set a bully offer aside and go forward with your original plan of reviewing multiple offers at the time of the offer presentation:
You Believe A Higher Offer Is On The Table
If your realtor thinks your home has a high market value, they may suggest that you turn down a bully offer if they believe you will get more in a bidding war.
The Offer Price Is Barely Over Asking
If the offer price on the bully offer is only a few thousand dollars over asking — or not over the asking price at all — then it’s probably not worth considering. Odds are that you’ll get a higher offer on the review date if your home and its location are desirable.
You’re Getting Lots Of Interest
One of the only ways to know if your home truly is in demand is by having prospective buyers visit and inquire about it. So, if your home gets lots of interest during the visitation period, chances are it’ll do just fine with a bidding war.
The Market Is Booming
If the market is very hot, you may want to give it a few extra days to gain more interest and bids. And if your neighbourhood is booming and your home is valuable, you’ll likely garner plenty of interest and bring in multiple offers to review on presentation day.
Final Thoughts
A bully offer may be worth considering if it’s a very hot seller’s market and you’ve found an amazing home that you don’t want to risk losing to another buyer in a bidding war. If you’re a seller, consider the risks of abandoning other potential offers before accepting a bully offer. Make sure to do research and get advice from a professional realtor before you officially commit to it.
