Understanding the Offer Process

Holding Back Offers

 

In a busy sellers market, like we’ve seen these past few months, it is not uncommon for a seller to hold back taking offers until a specific day and time.  The selling strategy is clear: expose the property to as many potential buyers as possible and try to build up demand before you take any offers, hopefully creating the conditions for a bidding war. The seller wants to be in the position to take the highest and best of a number of offers.

 

In order to attract a large number of potential buyers, the property is usually priced below market value. You’ve seen these listings. They make you go “Wow! That seems like a really good price for that great house!” But keep in mind that this is part of the strategy. The property may look like a bargain, but the sellers are counting on having a number of parties competing and driving the final price up.

 

 

 

 

 

 

 

 

How do you compete in a multiple offer situation?

 

1. First, understand what the true market value of the property is. Your realtor can help with this by providing a list of comps, similar properties that have sold recently.

The one thing you do NOT want to do is to offer too high a price, such that either the property doesn’t appraise and you can’t secure the mortgage, or it takes years for the market value to catch up to what you paid. Many a buyer has had remorse from getting caught up in the bidding frenzy and paying way too much for a property. Sometimes these folks try to break the contract and back out of the deal, but this generally means court costs and financial concessions to the seller for breach of contract.

 

2. Put in your best offer. Generally speaking if there are multiple offers you probably won’t get an opportunity to improve yours – they will take the best of the initial offers. This isn’t always the case: sometimes if the top two offers are really close, the seller will ask that those buyers to come back with their best, but you can’t count on this.

 

As mentioned previously putting in your best offer also means considering whether or not to include conditions. Usually the highest and cleanest (condition-free) offer gets accepted, but sometimes a conditional offer is the winner if the price is significantly high enough that the seller is willing to wait a few days.

 

 3. Include the things that will make your offer seem attractive. If you have a financing condition, include your pre-approval letter to show that financing is just a technicality. Offer a better-than-standard deposit and show them the bank draft to let them know you’re serious. If you’re inclined to include a letter or some other indication of how much you love the property, that’s great. Sometimes that works wonders, but other times cold, hard cash wins the day.

 

4. Take the advice of your realtor. While no one has a crystal ball, I guarantee your realtor has been in the situation before. As offers get registered on the day, the other interested realtors are kept informed of the most recent number of offers. Knowing how many other offers there are is the key to knowing how much to offer.

 

What is a bully bid?

 

A bully bid, or pre-emptive offer, occurs when a buyer doesn’t want to wait for the offer day and tries to ‘bully’ the seller into looking at their offer beforehand. 

 

Here’s the thing, the seller has explicitly chosen to hold an offer date. They are counting on attracting multiple offers to drive the price up. The price on the listing isn’t the price that they are hoping for. In theory, bully bids should be so attractive that the seller would opt to accept it, rather than wait to see how the bidding war plays out. In other words, a bully bid at or near the asking price isn’t really a bully bid at all and just wastes everyone’s time.

 

Sellers can choose whether or not to view a bully bid. I encourage my sellers not to, because in most cases the buyer will wait and come on offer day with everyone else.

 

If a seller does choose to look at a bully bid it essentially moves up the offer date.  As an interested buyer you need to be prepared to offer early as well. Usually the listing agent will send a note to all the agents who have shown/are booked to show the property letting them know a bully bid is being received at such-and-such a time. Anyone else interested in making an offer has to decide whether to hustle their offer in to be considered at the same time or wait and see what happens. Sometimes the bully bid is successful at shutting out the competition and sometimes the seller decides to reject it and see what transpires on the original offer date.