How Does a Bully Offer in Real Estate Work?

Bullies don’t win in life but they can win real estate bidding wars. Prospective buyers might use a bully offer to close the deal early, effectively shutting out any competition. That means that you and your mortgage pre-approval need to move on to the next property. Let’s shed light on the legal practice that can steal a house off the market.

What is a bully offer in real estate?

A bully offer works a lot like the principle of Fear of Missing Out or FOMO. Also, a bully offer is really a brute name for a pre-emptive offer. It works like this:

• A seller lists their house for sale and sets a date when they will look at offers
• A prospective buyer submits an offer beforehand with an expiry date that ends before the presentation of bids begins
• The seller’s real estate agent has to inform their client of the pre-emptive offer
• The seller decides to view it or not

The buyer puts in the pre-emptive offer hoping to entice the seller to accept their bid without exposing them to competition. 

Where do bully offers happen?

Bully offers happen in Canada’s scorching hot real estate markets. While Montreal might not be seeing much pre-emptive action, it does happen in Ontario and British Columbia. In fact, both the BC Financial Services Authority (BCFSA) and the Real Estate Council of Ontario (RECO) clearly outline the facets of a bully offer. RECO goes a step further, detaling how brokers must prepare their client for the possibility of a pre-emptive or bully offer. 

Pre-emptive offers, brokers, and sellers

In fact, brokers must prepare clients that pre-emptive offers might happen.The seller and broker have to negotiate how they will act if a pre-emptive offer comes in. Getting a client to write down any circumstance where they do and do not want to be informed of a bid is crucial. Why? Legally, a broker must present any offer to the client unless otherwise agreed upon at the beginning. 

If the seller doesn’t want to see any pre-emptive offers, he has to put that in writing with their broker. It cannot be assumed. The seller can stipulate when and if they would want to know about a bully offer. The conditions are up to them.

Let’s suppose that a client wants to review bully offers that exceed a certain dollar value. In this situation, the house is listed at $800,000 and the seller wants their broker to tell them about any pre-emptive offer that comes in above that number. When and if a bully offer comes in at $801,000, the broker has to inform the client.

Informing other buyers in the process

In that scenario, according to RECO, the seller and their broker have to do two things. First, they have to change the bid presentation time and date. Second, all buyers involved in presenting any bid have to be told that there is a pre-emptive offer on the table.

That means that the broker has to notify anyone who expressed interest in the property that there is a change to the time and date for presenting offers. All of this must be in writing. Who might need notice? Anyone who booked upcoming or past viewings This includes open house showings. As well, the broker has to tell anyone who said that they will be or have already put in an offer.

Is a bully offer legal in Canada?

Actually, yes, it is legal. Is it morally gray? Perhaps, but that is opinion and not fact. There is nothing forcing the seller to look or to consider the pre-emptive offer. Again, a good broker would have discussed a pre-emptive offer game-plan with their client at the beginning of the relationship.

What are situations where a bully offer might happen?

Bully offers happen in every market. A hot market with low property inventory is a perfect setting for pre-emptive offers. Also, if the property is move-in ready in a desirable location, a bully offer can seal the deal.

Do you want to be a real estate bully?

Hunting for a house or property in a hot market is frustrating. After a while you might want to change tactics and try a pre-emptive offer. Here are some things that you might need to be successful.

Work with a real estate broker

A real estate broker in good standing is there to help you. Get one that knows the area well where you want to buy. They know the market and they know if a pre-emptive offer is a viable option. They might already have experience with pre-emptive offers

Get pre-approval for more than the purchase price

Actually, this is good advice for anyone looking to buy real estate. Get pre-approved for a mortgage. Knowing what the bank or lender is willing to give you makes it easier to look for the right property. Being pre-approved an amount higher than the purchase price means that you can make a compelling offer. If you are not sure if you can qualify for a mortgage, use an online mortgage qualifier calculator to get a feel for how much you can expect to get.

Create a compelling offer

A pre-emptive offer usually involves compelling, if not irresistible, features. Often the bully offer is significantly above the asking price. That can mean anything over 10% in some cases.The offer might also come in with a deposit cheque. Another tantalizing feature is when the prospective buyer waives all conditions.

Waiving conditions might mean foregoing on a property inspection. A buyer can also waive any conditions related to financing. That can be dangerous for the buyer because they have to have the money set up and accessible. Don’t put in a condition-free offer if your funds depend on selling an asset, like your current home. Once the offer is accepted, the buyer cannot back out for any condition.

Other aspects of the offer might include agreeing to the seller’s timeline. If they want to close in 30 days, then make that part of the offer. Your own broker is a great source of information on what to include.

What to do if your bully offer is rejected?

There is nothing stopping you from submitting an offer on the same house at a later time. You put down a traditional offer even if your pre-emptive offer was rejected. Work with your broker to plan the next best move to get you into the property you want.