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Bullying the Seller?

Posted June 16th, 2016 under say what?, smart selling, myths and truths.

With such a strong seller’s market in Brampton, the terms “bully offer” and “pre-emptive offer” are becoming commonplace. What do these terms mean, and how do they affect you?

A Brief History of Bidding Wars

When listing a home, one of the tactics that selling agents use to get the attention of buyers is to intentionally set the asking price below market value. Often, listings like this will also include a fixed date on which the seller will be accepting offers.

The real goal here is to attract multiple offers, so that the selling agent can pit the buyers against one another in a bidding war. The fixed date encourages buyers to “bring their best offer”, which helps to raise the starting price.

When the fixed date arrives, the selling agent will typically send back all of the offers, encouraging the buying agents to improve them.

The buyers, being only human, often get caught up in the competitive atmosphere, and end up focusing on “winning” rather than getting a good price.

If the seller can create enough competition, they can walk away with a higher final price, despite having listed the home at a lower price to begin with.

Enter the Bully

Of course, buying agents are wise to these tactics. Sometimes, the buying agent will encourage the buyer to make a “bully offer&rdsuo;—this is a pre-emptive offer that’s so good, the seller can’t refuse it. This allows the buyer to bypass the bidding war entirely.

Normally, the seller can’t just accept the bully offer when they’ve set a fixed date for offers. The selling agent would be required to inform any other agents who had shown the property, so their buyers could bid as well.

However, if the seller declares in the listing that they’re willing to look at pre-emptive offers, then all bets are off. They’re effectively inviting bully offers, knowing that this can only drive prices up further.

In Calmer Times

When the market is calm, trying to create a bidding war is rarely effective, because buyers have plenty of homes to choose from. There’s no need to get into a bidding war when a comparable home is easily found.

However...

Today’s market is so overheated, it’s not even necessary to under-price a property to create a bidding war. All a selling agent needs to do is set a fixed date for offers to be presented, and buyers will literally line up to buy the property.

For buyers, multiple offer situations can become unavoidable. In this situation, a bully offer can become a useful tool for the buyer, allowing them to avoid the intense atmosphere of the bidding war.

Pre-Emptive Offers 101

If you’re a buyer in today’s market, what should you do? In general, it’s still better to avoid bidding wars when possible. Pressure leads to mistakes, and it’s easy to overpay for a house when it feels like it’s the only one that matches your needs.

If you choose to use a bully offer, be prepared to walk away if it’s not accepted. Otherwise, all you’re doing is getting yourself into a bidding war with a higher starting point. Instead, choose your price, make the offer, and accept the outcome.

Want to know more about offers or bidding wars? Just ask me, I'll be happy to help.