Dealing with Bully Offers in a Hot Market
Bully offers are not illegal but they are controversial and stressful for sellers. Real estate professionals can get themselves into trouble if they don’t handle them correctly.
Canadian real estate markets have generally cooled down during the last year, but there are always popular neighborhoods where bidding wars between buyers end up frustrating potential homeowners.
Recently the Ontario Real Estate Association (OREA) called on the provincial government to outlaw the practice of “bully offers”, also known as “pre-emptive offers” on real estate listings. In a hot market it’s common for sellers to delay all offer presentations to a specific time and date, as a way to increase interest in the property, create multiple offers and push up the price of the home.
A bully offer is when someone makes an offer ahead of the predetermined presentation date. Generally, the offer is for a limited time only so the seller does not get to compare it to whatever offers may come in on the set date.
get themselves into trouble if they don’t handle them correctly.
Last year, the Real Estate Council of Ontario (RECO), which regulates salespeople in the province, fined an agent $10,000 in a bully offer case. The agent listed a property with a note stating that there would be a delayed offer presentation, and that all offers had to be registered with the agent by Feb. 24 at 5 p.m. The note said the seller reserved the right to consider pre-emptive offers.
On Feb. 19, a buyer’s representative contacted the listing salesperson to book a viewing appointment. Later the representative left a voicemail with the listing salesperson for more information about the property but did not get a return phone call.
The listing salesperson showed the property to another of his clients and prepared a bully offer. The offer was accepted and the other sales reps who had booked appointments were informed that the property had been sold and all viewings were cancelled.
RECO fined the agent for violating the industry’s Code of Ethics by failing to notify all the buyers who had expressed an interest in the property that an offer had come in, and that the offer was from his own client. He was also fined for not returning the voicemail message within a reasonable amount of time and for failing to tell the buyer’s representative that a written offer had been received for the property when they made the appointment to view the property.
There was nothing illegal about this transaction but it was bound to leave a bad taste in the mouths of all the would-be buyers.
“If a home listing includes an offer date, that’s the date on which all offers should be considered; an offer made before that dateÖ should not be allowed,” says OREA president Karen Cox. “This will ensure that all interested buyers of a particular home get a fair shot at making an offer. For sellers, it means they will have a chance to work with their Realtors to carefully and thoughtfully consider all offers without feeling like they are in a pressure cooker.”
OREA is also urging the elimination of escalation clauses, which can be used to top any better offer with a previously stipulated amount.
“A clause that allows a buyer to automatically bump all other offers out of the running in a multiple offer situation makes for a very uneven playing field,” says Cox. “Further, for an escalation clause to kick in, a Realtor must reveal private financial information, such as the highest offer on a home, to the buyer using the clause, which violates the Realtor Code of Ethics. Eliminating contradictory rules like this will strengthen consumer confidence in the province’s real estate market.”
So why would a buyer make a bully offer, and why would a seller accept one?
“Buyers sometimes do not want to get into the hassle of bidding and out-bidding other potential buyers during the sale of a property,” writes salesperson Hani Faraj of Re/Max Little Oak Realty in Vancouver on his blog. “Sometimes, once they’ve settled on the decision to buy a house, they want to close the deal without any fight. A bully offer assures a clean slate from any competition or fight.”
In a 2013 blog, Toronto broker David Fleming of Bosley Real Estate says, “I have submitted several bully offers in the past few years that have been accepted, and all of them were at prices lower than what we would have offered on offer night. That’s the whole point, in my opinion. You get to test the waters, see what the seller’s expectations are, and maybe you’ll get lucky.”
But Fleming says in his experience, less than 10 per cent of bully offers are successful.
“I’ve also been on the receiving end of several bully offers, as a listing agent, and I have never encouraged my sellers to accept them. Each and every time I’ve received a bully offer, I’ve always sold the house at a higher price on offer night. And more often than not, the agent who submitted the bully offer has come back with something higher on offer night.”
Faraj says bully offers sometimes seem attractive because they generally offer a good price and no conditions. An anxious seller may believe the price offered is the best they will get. He says sellers should consult with their Realtors and make sure they understand the valuation of the property.
“If the idea of receiving and dealing with bully offers gives you too much stress, inform your Realtor that you do not accept any such offers,” he says.