Bully offers, or bully bids as they are sometimes known, are a term that is being said a lot on all platforms of the Ontario real estate market these days. The reason? Ontario realtors are recommending that the provincial government ban bully bids (offers). But what is the buzz around it, why is banning it a priority for real estate agents? And how will buyers and sellers react to it? That’s what we’re going to talk about in today’s post.
What Is a Bully Offer?
Bully bids (offers), also known as pre-emptive offers, are those submitted by a buyer, even without the established seller’s price and offer date. In other words, a bully bid is an offer from a buyer to a seller to purchase a home listed for sale on Multiple Listing Services (MLS) that is submitted before the seller’s established offer date.
If there are more buyers in the market than homes listed for sale, many sellers choose to hold offers to allow the property to get more exposure so that more buyers can see it, thus increasing the chances of a bidding war. This is a smart strategy adopted by sellers, who have listed a fair price for their home to drive the selling price up.
To deal with a seller who is holding back offers, many buyers use the tactic of ‘bully offers’ to get the sellers to look at that buyer’s offer quickly, leaving no time to notify other buyers who are interested in the property.
Let’s understand this with an example, say you listed your house for sale on Wednesday with the intention of allowing it to be on sale for four days. You instruct your real estate agent that you’ll accept offers on the coming Thursday so that he/she can market the property to the maximum number of buyers. However, on Friday night you receive a phone call from your agent telling you that you have an offer and it will last only till midnight. That’s a bully offer.
What Is the Purpose of a Bully Offer?
The main purpose of a buyer making a bully offer to a seller is to beat out any potential competition and possibly paying a lower price compared to what the property could have gone for. The bully offer is usually above the asking price of the property but the timing of the offer leads to a situation where other competing bids are never even considered by the seller.
What Do Ontario Real Estate Agents Think About It?
The Ontario real estate group strongly condemns the practice of bully bids as they give some buyers an unfair advantage over other buyers. It is a practice that frustrates buyers and their real estate agents who spend their time in viewing the property and preparing an offer for the designated offer date set by the seller but fail to get an opportunity to do so. Simply put, it creates an unfairness in the home buying and selling process which makes it unethical.
‘Eliminating the pre-emptive offers that result in homes being sold ahead of the time and date specified on the listing would level the playing field among buyers in competitive urban markets’ said Karen Cox, President of the Ontario Real Estate Association (OREA).
‘Bully offers aren’t good for home sellers either, because they haven’t had the chance to consider all the offers they may receive’, she added.
Eliminating bully bids is one of the 28 recommendations proposed by the OREA for modernizing the 2002 Real Estate Business Brokers Act (REBBA). The real estate group is of the opinion that banning the practice of pre-emptive offers will ensure all interested buyers get a fair chance of making an offer on a property and allow sellers to consider all offers carefully.
What You Should Know
Being a buyer or seller, you should know how a bully offer affects you and how to deal with it. As far as a seller is concerned, there’s no specific answer to whether you should accept a bully offer or not. It is up to the seller to decide. Sometimes, bully bids can be worthwhile if you know the market value of your home. But if you’ve listed your property low just to get multiple offers, it is crucial to evaluate when a bully offer is worth accepting.
When you should accept a pre-emptive offer-
- If you’re getting a really (we mean REALLY) good amount of money
- If the offer is firm
- If the real estate market is slow and fewer offers are expected
- If your realtor has notified all other interested buyers
When you should not accept a pre-emptive offer-
- If the offer is not too good
- If you’re getting a lot of traffic and your property is receiving good feedback
- If your realtor has not notified other buyers about the offer
Keeping the recent buzz of banning pre-emptive offers in mind, it is considered unethical for a buyer to make one. Many buyers might consider making a bully bid because it is no different than a regular offer. However, it is noteworthy that this ‘regular offer’ is made disregarding the MLS rules and regulations which states that the listing is holding offers.
Overall, it entirely depends on the seller and the buyer involved to decide how the housing process works. Evaluating whether bully bids are ethical or not is subjective. We’ll leave that to you. However, it is advisable to research well, analyze evidence and consult your real estate agent so as to make an informed decision.