Mastermind for October 19th. Bully Offers
Better late than never. Mastermind was busy this week. We had a substantial group from some other Bosley offices joining us. It seems everybody wants to take advantage of our discussions. While we usually talk about three or four subjects, this week’s Mastermind centred on the discussion of bully offers. Just before writing this, I tweeted out to the “Twitterverse” and asked to get some bully offer stories from agents. I have included many of the comments I received. Thanks to everyone for their contributions.
Believe it or not, there was a time when there were more sellers than buyers. Pricing was not that easy. It was standard practice that before listing a home, an agent would get others from their office to walk through it and write the price down on the back of a business card. Agents would show the cards to the seller and use that as a basis for the listing price. Today, the scale has tipped. More buyers means extra pressure. Buyers need to act fast and in many cases may have only a few hours to decide whether they are going to spend a million dollars on a house. It seems almost insane.
Agents didn’t create the process of pricing for multiple offers but we certainly fine tuned it to work in our client’s interest. As the scales were tipping, more buyers were coming to the table. First one offer, then two offers, etc. Multiple offer situations didn’t happen overnight, nor were agents the architects of the multiple offer scenario but in an effort to keep the process clean and fair, we had to develop ground rules for multiple offers; Once the home was listed we had to allow a decent amount of time to review the property, get financing, arrange home inspections, etc, and then have a date to review offers. What developed was the sport of “Real Estate”. People would swop stories of homes selling for outrageous amounts over the acking price. I saw it myself when a neighbour wanted to list his home substantially below market value so he could tell his friends that his house sold for $300,000 over. Thankfully his level-headed agent talked him out of it. The process is now part of the real estate psyche. Agents list below market value in an effort to build up the hype, then hold back and wait for the offers. It has become a slippery slope.
So the next logical progression of this procedure is “The bully offer”. It is nerves of steel business that most agents are not prepared to undertake. That is why we are now teaching our agents bully offer strategies. If you want to win, you need to play the game with more skill and knowledge than the next guy. Talk about a value added service. In its earliest incarnation, the bully offer was just a way to scare off other potential buyers. Agents would simply submit offers that (use your best Godfather accent here) the seller could not refuse.
So, you see a house that hits the market for $599K. it is perfect for your client. You have shown it to them and they want to offer on it. Offer night is in 7 days. Your research has shown that it is probably worth $650K but your clients have lost out on several houses already. You suggest that they try a bully offer. You get a home inspection done, financing is in order and you have discussed going in at $675K. It is at the top end of your client’s comfort level but they need to find a home before the start of the school year. You draft up a clean offer and call the agent to tell them that you have a good offer and you want to present. What next?
There are two scenarios you might expect. One, the listing agent will be too frightened to present it so he will talk his clients out of it. Two, he will do what he is required to do and allow you to present the offer to their client. If he agrees to present the offer he must inform everyone that has called or viewed the property and let them know there is a bully offer in play. This will allow those to offer as well. Also, he must re-run the listing and remove the offer date. You can see that this is a lot of extra work for an agent especially if the property has been viewed by 50 or 60 people.
So, what’s in it for the seller to even consider a bully offer? This is really where you need to be prepared. My sense is that every seller is willing to look at a bully offer but not all of them are prepared to seriously entertain one. In the scenario above, the seller might be very excited by the $675K offer but will be thinking that if someone is willing to put this kind of money on the table there may be others prepared to pay much more. The short answer is yes, maybe. But if you have done your homework, you can logically demonstrate to the seller that they are getting above market value, and that if they accept your offer, the house will be sold tonight. No fuss, no muss. Part of your discussion should include the ‘what if’ possibilities. What if, come offer night, you don’t get offers? what if you have offers that aren’t higher than this offer?
Generally though, most agents who have been at it awhile will tell you that seasoned buyers are more prepared than ever for bully offers. They have their ducks in order and are prepared to “go in clean and strong”. So bully offers, in the hands of a good listing agent, can still ignite bidding wars. Once again it boils down to experience. One agent emailed me and suggested that we should eliminate the ability to bully but I’m not so sure. The reality is that you have nothing to lose by presenting a bully offer. Greed generally outweighs inconvenience and if the sellers opt to wait, you can always come back to the table on offer night. One agent told the story of trying to bully a seller, being turned down and then showing up on offer night as the only player. Her client ended up getting the home for $30K less than their bully offer. Score.
Tom Bosley has always stood behind the belief that agents learn from each other’s experiences and stories. He is right. Make the office your base of operations and you will hear all the stories of successful (and failed) Bully offers.