You have finally found your Rosedale dream home and are ready to make an offer. Your crestfallen Agent reminds you that “They will not look at offers until next Tuesday.” You are indignant.
“What? That’s ridiculous. I want to buy it now. Is that legal? Can they do that?”
“It’s legal but unpleasant. The Seller is hoping there will be multiple bids next Tuesday and he’ll get more than he’s asking.”
“Do you think there will be other offers next Tuesday?”
“It’s a distinct possibility. The asking price of this house is no higher than the price at which the last 2 comparable properties sold for. Those sales happened six months ago. The market has strengthened since then.”
“Why don’t you write it up at the asking price and we’ll give them until 6:00pm tonight to make up their minds?”
“We could do that, but why would the Seller consider an offer at the asking price ahead of his appointed tender date? After all, he is expecting to have more than one to choose from.”
“I want this house. What do you think I should do?”
“Well, bully offers are typically 10% or more above the asking price and give the Seller everything else he is looking for.”
“If I do that, I’m bidding against myself!”
“Exactly - you may be leaving money on the table in exchange for being the only offer the Seller treats. You may be paying more than anyone else would pay, and more than you might have to pay. If you wait until next Tuesday and you are the only bidder…?”
“I see what you mean. If I sign a bully offer, is there any guarantee I won’t be in competition anyway?”
“None whatsoever. We can put a short fuse on your bid, but there is no telling how quickly another buyer might be prepared to act if they get wind of your bid. And you can bet the listing Agent will call everyone who has shown the house the minute we declare ourselves.”
“O.K. I get it. 10% more than the asking price now in order to increase my chances of winning the day.”
As you can see from the above exchange, the making of a bully offer comes with considerable risks for both sides. The Buyer may be paying too much and the Seller may be selling for too little, even at 10% over his ask.
If the Seller receives a bully offer and decides not to accept it, he may regret his decision. More than one Seller has turned down a bully offer only to discover that at “tender hour” he has no bid at all. What bully bidder is going to re-submit an offer 10% above asking when he knows he is not in competition?
If a property is properly priced, it should sell within 5% of its asking price within 30 days. Bearing that in mind, a prudent Seller will co-create a marketing strategy with his listing Agent that offers a thoughtful process to those considering the purchase of his house. Thinking positively, a tender date allows for due diligence on the part of the Buyer. The cynical Buyer sees only a vile strategy to create a bidding war.
The Toronto real estate market can feel like a jungle sometimes. Find a trusted adviser to help you evaluate market conditions and pick the options that are right for you.
Best Wishes for Success,
Peter
