Should Bully Offers Be Banned?
April 18, 2019
If you’ve been following real estate news (or reading my blog!), you know that the Ontario Real Estate Association (OREA) is asking the province to revisit the Real Estate and Business Brokers Act, a piece of legislation that regulates the industry, including how many hours of study are required for a real estate licence as well as best practices.
One of the changes OREA is asking for is the banning of ‘bully offers’.
In recent years, it’s become common practice for an agent set to a date when they will accept offers on a new listing. The “offer date” is usually 5 to 7 days after the listing has hit the market and gives potential buyers a chance to tour the property and do their due diligence, not to mention prepare an offer and have a deposit cheque ready.
The reason an offer date might be set is that, in an “up” market with low inventory, it’s important to have ample time to expose the property to the market in case more than one buyer may be interested, thus resulting in a possible multiple bidding situation. Sometimes this results in multiple buyers submitting offers on the property and sometimes the offer date comes and goes without a buyer.
A “bully offer” happens when somebody loves the property so much that they make an exceptional, above the asking price offer, hopefully which the seller can’t refuse, to try to pressure the seller into accepting their offer before the actual offer date.
The advantage to the seller is that the home sells quickly – in as little as a day or so. According to the Toronto Real Estate Board, the average number of days a property was on the market for in March 2019 was 19, which is not a very long time at all.
The advantage to the buyer is that they get in before everybody else and hopefully they won’t be facing a multiple offer situation where they are bidding against other buyers.
So what’s the issue?
Even though a bully offer traditionally comes in above asking, the seller has no idea if this is going to be the best offer, which makes acceptance a gamble. The amount offered has to outweigh the doubt a seller may have about accepting the early offer. When buyers know they are bidding against other buyers, they may offer more.
My job is to explain to the seller what the pros and cons are of accepting or rejecting the offer. It’s ultimately up to the seller and how much they think their home is worth. If they see a number that’s higher than what they expected, they may jump on it. If it’s not as high as they expect, they may turn it down.
A bully offer also puts other potential buyers at a disadvantage. They work around the whole system so instead of going through the front door, they go through the back door and get the house but they don’t know if they’ve overpaid.
However, here’s what happens behind the scenes when a bully offer is presented…. if a bully offer is presented (and it has to be official, accompanied by a deposit cheque and no conditions, because if there are conditions it’s unlikely that a seller will even consider it, regardless of the amount of money offered), the listing agent has to change the offer date on the MLS and then contact any agent or buyer who’s seen the property, expressed interest, booked a showing, or been to the agent and or public open house as well as alert anybody who sent an inquiry about the property.
If a seller decides they want to consider the bully offer, this is not a completely unreasonable request except that bully offers often come with time limits.
I recently had a property listed and we received a bully offer that expired in one hour. I asked if they could hold off until I met with the client at 8am the next morning and the answer was no. If I didn’t deal with it that night, my client may not have sold for the price they were offering. As it happened, I was committed that evening, but I had to leave that event, speak to my client, who thankfully was available to deal with the short timeline.
I’m fine with giving time limits, but it has to be within reason. An offer that is only valid for an hour before it becomes null and void is not an acceptable way to do business. Forget about the life of a realtor; we signed up for this but what if the seller isn’t available? Sometimes when a home is on the market, sellers will head out of town until the offer night. (It’s so much easier to keep a place clean when you’re not living in it.)
Within the space of an hour, I had to review the offer with my client as well as contact everybody who had expressed an interest in the property despite the fact that there was zero chance that anybody else could come up with an offer and a cheque within the hour… of course, it’s a tactic used by any realtor representing a buyer to keep the irrevocable time on an offer as short as possible but sometimes life gets in the way and time is required to “rally the troops” as it were.
It is the seller’s right to get the best price and to take any acceptable offer, but at the same time, the rules set out for buyers such as a predetermined offer date don’t mean anything and that is incredibly frustrating.
I feel it takes away from the profession to set an offer date and then change the date. However, banning bully offers is taking the choice away from the seller. I think the right change is to legislate a minimum amount of time allowed in a bully offer.
If you have any questions about this discussion or any other real estate related topics, please feel free to contact me!