Last month, Property.ca agent Cameron Miller spoke to the Globe & Mail about the frenzied real estate market, and one of the things he talked about was the rise in bully offers – and how even bullies are getting out-bullied with multiple pre-emptive offers.
“Mr. Miller says the last three bully offers he has placed on behalf of clients have all been outdone by other bids. Bully offers are a strategy some buyers use to circumvent the bidding process when they don’t want to wait for a scheduled offer date.
“My bully offer has been out-bullied,” he said of the most recent dust-up. “People are quite aggressive.”
Prospective tenants also compete in the rental market for units with a generous amount of space and unique character. A townhouse with 1,300 square feet of living space at 25 Stafford St. in Toronto was available for lease with a monthly rent of $3,500. Mr. Miller says the owners received five offers and rented the unit for $4,000 a month.”
Since they are becoming more of a trend, we sat down with Cameron to get some insights into how buyers and sellers can navigate bully offers in this hyper-competitive market.
What is a bully offer?
Bully offers (also known as pre-emptive offers) are when a buyer makes an offer, usually well above the asking price, before the date the seller is considering them. The goal is to get a jump on other buyers by convincing the seller to skip over the usual process and seal the deal right away.
Bully offers are an indicator of a hot market, so it's no surprise they’re becoming more commonplace. They’ve been a fixture in the detached market throughout the pandemic, but now we're seeing them more often with condos, as the GTA condo market heats back up. And these days, we've even started seeing them with rentals, particularly for more spacious or unique properties.
Can you tell us more about the rental listing you mentioned in the Globe & Mail article?
It was a townhome off King West: spacious, loft-style with 17-foot ceilings, a terrace overlooking Stanley Park, and a very cool vibe. It ended up going for $600 a month over asking!
The headlines are saying the rental market is down, but this says otherwise. And while it may be true for smaller units, the bigger ones are in demand. It’s not surprising: people want space right now, and as they see a light at the end of the tunnel, many are also realizing they don't actually want to leave Toronto to get it. So the competition for roomier units – rentals and otherwise – has definitely increased.
How can buyers compete with bully offers?
By being ready to make a move immediately. If you want to compete, have all your ducks in a row. Get pre-approved, have the funds for your deposit liquid and easy to access, and make sure you're working with a team (agent, lawyer, mortgage broker) that knows the market and can respond quickly. For example, you may need to review a status certificate before making the offer, so you need a lawyer who can do that the same day.
And be prepared to be a bully yourself. A well-informed agent will let you know when it's a good idea and how much you should offer.
If you’re a renter, the same concepts apply: be ready to put first and last down on the spot, accept all the landlord’s conditions, and work with an agent who knows the market. And if you really want a place and you’re facing some competition, don’t be afraid to offer more than they’re asking.
How do you come up with the number for a bully offer?
We regularly hear about a place going for $100K over or $150K over asking. However, properties are often priced below market value to encourage bidding wars, so the “over asking” amounts you’re seeing are inflated. Base actual value on what similar properties in the building and in the area have sold for (not what they’re listed for) and on how many listings are actually available. The lower that number, the greater the competition and the higher the prices will go.
I research sold prices for the previous 15 days, dive into hyperlocal data to understand that specific market, and look at citywide trends: that's what my recommendations are based on. Say a 1200sf townhouse is listed at $1M, but places in the same neighborhood recently sold for $1.3M. Taking that and the current high demand for townhomes into account, I might counsel my clients to make a preemptive offer in the ballpark of $1.35M.
When is making a bully offer a good idea?
If the seller is open to an early offer, it can work well in any scenario where there's going to be a lot of competition. It gets the seller’s attention fast and gives them the opportunity to bypass the hassles and stress of multiple showings and bidding wars.
It can also be a good idea if there's already another bully in the mix. If another offer is registered on a property my clients are interested in, I get a notification. And any good agent will let their clients know and advise them if it's a good idea to get a little more aggressive.
What makes a good bully offer?
Show them the money! A good price is important, but so is a firm offer with zero conditions, and having a deposit check in hand. You want to make it as easy as possible for the seller to say yes.
When is a bully offer a bad idea?
If there’s an offer date but the listing specifies that the seller is NOT considering pre-emptive offers, going ahead anyway can backfire. It can leave a bad taste in the seller's mouth, and if they see your name again on the offer date, they could be less inclined to consider you over someone else.
Why would a seller refuse to consider pre-emptive offers?
It’s often a convenience thing: if they live overseas or they're very busy and can't be available until a certain date, they will likely have set aside a specific time to deal with offers. Having you come in early becomes a hassle and will probably not be welcomed.
I'm a seller who’s received a bully offer – should I accept it?
First off, listen to your agent: their knowledge of the market will help you decide whether you should jump on it or not. In a hot market, there's always a chance you may be leaving money on the table if you don’t wait until the offer date. However, it's a gamble. This is where your agent needs to dig into the data to see what similar properties have been selling for and base the decision on that.
Looking at the “sale to list price” ratio (the average of what place actually sold for vs. what they were listed for in a given month) can be very useful. Right now, the ratio for condos is 100.5%, so most condos are selling close to list price. Which means a bully offer may not be necessary, unless the specific area is well above the city average.
For townhomes, on the other hand, the current sale to list price ratio is 108%. Which means towns are going above asking pretty regularly. So I might counsel a client who wanted to land a townhouse – especially one in an in-demand neighborhood – to be a little more aggressive. But again, everything depends on the local market. It's why you need an agent that’s an area specialist.
Need to talk to a pro about a buying or selling strategy in this hot real estate market?