The Buying Process Step 11 | Understanding Pre-Emptive Bids

Pre-Emptive bids otherwise known as Bully Offers

What are they? When Sellers list a good property in a hot market they are often hoping that their property will generate a bidding war. Bidding wars have a track record of generating the highest prices for Sellers. That happens frequently in Toronto’s current real estate market. When that strategy is employed by the Seller and Listing Brokerage then a date, typically five to seven days down the road, is set for interested Buyers to submit their offers to the Seller for consideration. If more than one Buyer comes to the table at the time then a multiple offer scenario ensues.

Don’t forget that the Seller is a client of the Listing Brokerage and as such the Listing Agent’s allegiance is directed exclusively towards the Seller. The Buyer, on the other hand, typically is a client of the Cooperating Brokerage and as such the Agent has an allegiance to do the best for the Buyer. So even though a Seller may have set a particular date to review all offers, a Buyer is legally entitled to ignore that request and submit an offer earlier than the requested ‘offer date’. Should the Buyer go ahead and submit an offer earlier than the Seller-requested time-frame, we have a Bully Offer.

Sellers are not legally required to consider a Bully offer, however if a Bully Offer is duly registered with the Listing Brokerage then the Seller must be advised of the existence of that offer. They must then decide whether or not to actually entertain that offer.

Part of the Seller’s decision making process whether or not to consider a registered Bully Offer often revolves around the price of the offer. While not formally presenting the offer the Buyer’s Agent (with the Buyer’s permission) might verbally disclose to the Listing Agent the price of the offer in an effort to get a formal presentation of the offer.

Sellers go through several considerations before deciding whether or not to look at the offer. Such as: How many people are viewing the property?; How many other hot prospects exist in the wings?; Might they lose this buyer if they refuse to consider that offer now?; How much more might they possibly hope to get on offer presentation night above what is being offered now in the Bully Offer? There are a host of other considerations that all give rise to deciding whether or not the Seller will entertain the Bully offer.

If the Seller decides to go ahead the Listing Agent has a set procedure to follow regarding advising other Buyers and those who have expressed an interest in the property about the advancement of the offer presentation time and then the Seller is at liberty to view, accept or reject the Bully Offer.

From a Buyer’s perspective Bully Offers have pros and cons too.

A Bully Offer may well be accepted by the Seller with little or no competition from other Buyers. Sellers have to face the ‘bird in the hand’ conflict. It puts the Buyer more in the driver’s seat. ie. here is my terrific offer, take it or leave it.

On the down side, Sellers may resent having their requested offer presentation schedule being ignored and feel like the Buyer is exerting excess pressure on them, particularly if the Bully offer has a short irrevocable period.

Should a Buyer submit a Bully Offer on a property they see that they really want to buy?

Perhaps they should, you never know it just might fly. However, for Bully Offers to be considered they must be particularly attractive to a Seller. Usually, attractiveness here is defined as price. The Seller must come to the conclusion that it is not worth the risk of waiting until the official offer date time because it is unlikely that a higher offer will be forthcoming. Bully offers must be very, very good, attractive and compelling. Buyers making unattractive Bully Offers can easily offend Sellers, disadvantaging their subsequent offer on offer night.

A good Agent can review the appropriateness of Bully Offer submissions with Buyers in detail in each specific situation and come to the conclusion whether or not to go ahead with one.

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