Understanding The Bully Offer In Real Estate

What is a Bully Offer?

A bully offer is an offer made to purchase real estate property before the date the seller has set to begin accepting submissions. 

Buyers submit bully offers no matter the state of the housing market, as their goal is to acquire a home that’s piqued their interest.

However, bully offers are more prevalent in a seller’s market, where many buyers chase few properties up for sale, resulting in rapidly rising home prices and short Days-On-Market (DOM) for homes. 

To gain an advantage over the competition, a buyer may make a pre-emptive offer, which can be substantially higher than average and expire within a few days, or even a few hours.

Some buyers offer to purchase property for cash or without any conditions (the buyer first securing financing, for example).

They employ these tactics to entice or pressure the seller into accepting their deal. 

Though the bully offer can be perceived as an overly aggressive and sneaky strategy (hence the name), it’s perfectly legal in Canada.

However, some buyers and realtors have expressed concerns that bully offers give certain homebuyers an unfair advantage.

They’ve called for the practice to be banned, arguing that everyone should be allowed to submit a bid for a property.

In 2019, the Ontario Real Estate Association advocated for the Ontario provincial government to pass legislation banning the use of bully offers to make the bidding process fairer and more transparent for homebuyers.

However, the government hasn’t acted to implement any regulations thus far.

The Real Estate and Business Brokers Act (REBBA) in Ontario does outline some rules of conduct surrounding the bidding process on homes that brokers and realtors must adhere to.

However, it doesn’t explicitly regulate the actions of buyers and sellers, despite the ethical implications of tactics like the bully offer. 

Family moving into new home

Did You Know?

If you’re selling a home in Ontario, Form 244 – Sellers Direction can be used to indicate you will not accept bully offers.

Buyers: Should I Submit A Bully Offer?

There are pros and cons associated with bully offers, which you should carefully consider before deciding to initiate one. 

Pros:

  • Acquire the property you want faster – If you’ve spotted your ideal property and the thought of losing it makes you tremble, making a bully offer can increase your chances of acquiring it quickly and easily (while avoiding a bidding war with other buyers). It may make sense to pay a premium price to ensure it’s yours.
  • Gain leverage – By submitting an offer pre-emptively, the seller is now in a position where they’re comparing your material offer on the table vs waiting it out for other offers. Suppose you present the seller an enticing offer above the average selling price for a comparable home in the same area – some sellers may not want to wait it out and will take the deal in front of them. If you wait for other buyers to make offers, the seller will have multiple choices on how to proceed and therefore may negotiate your offer against others.

Cons:

  • You risk overpaying – Though your intention might be to secure a particular property at all costs, you could end up paying way above the appraised value, leaving you less money in your pocket.
  • You might lose access to mortgage financing – The purchase price you settle on to secure the property may be so high that you’ll fail to get approved for a mortgage in the amount you require. This is due to the lender appraising the value of the home substantially lower than what you paid for it.
  • Possession date might not be convenient – If you purchase a property hastily, you could end up in a scenario where you’re forced to sell your old home before legally taking possession of the new one. As a result, you’ll effectively be without a home for a brief period, which can cause unnecessary stress.

Don’t Forget!

If you make an unconditional bully offer to a seller, you risk getting disqualified for a mortgage should a home inspection reveal critical issues with the property.

Sellers: Should I Accept A Bully Offer?

If you’re a seller ready to list your home, there are pros and cons to accepting bully offers.

Pros:

  • Earn more money – The buyer may propose a price above the typical asking price for similar properties. You could snag a lot of extra money by accepting the buyer’s bully offer.
  • No conditions – A bully offer may have no strings attached, meaning it’s not conditional on the buyer securing financing, conducting a home inspection, selling their current property, etc. Most conventional home sales come with conditions, which could impede the selling process.
  • Expedited sales process – Since bully offers are presented before you officially start accepting offers from the public, you could strike a solid deal right away. You’ll be able to bypass open house arrangements and avoid bidding wars among buyers.

Cons:

  • No chance to hear other offers – By accepting a firm bully offer, you may realize less cash from your sale. Proposals from multiple buyers may work to bid up the price more than the action of one bully offer.
  • No open house – It’s not uncommon for bully offers to remain in effect for only a few days or hours. As a result, there’s no chance for the buyer to view the property in person, which could sway them to actually offer a higher price than they initially proposed, especially if there are multiple potential buyers bidding.

Frequently Asked Questions

  • What is a pre-emptive offer?
  • Are Bully offers legal in BC?

Mark is a freelance writer who specializes in writing content for firms in the financial services industry, including fintech. He has written for brands like Loans Canada, LowestRates, and The Motley Fool, covering topics related to investing, mortgages, credit cards, and many others.

He is passionate about educating people on how the financial markets work and providing tips to help them better manage their money. Mark holds a bachelor’s degree in finance from the Northern Alberta Institute of Technology and has more than a decade of experience as an accountant.

Outside of writing and finance, he enjoys playing poker, going to the gym, composing music, and learning about digital marketing.