What is a bully or pre-emptive offer in real estate?
A buyer who has been beaten up by a competitive real estate market might change tactics and try making a bully offer to win a home. The buyer wants to make a pre-emptive offer to try and beat the competition for the home. There are pros and cons for both the home buyer and seller when it comes to bully offers. This article will explain bully offers, when they are used, and whether to make or accept one.
Let's start with a definition of what a bully offer is in real estate.
A bully offer, also known as a pre-emptive offer, is where a home buyer submits a strong early offer before the offer review date and that offer has a short expiration period in order to force the seller to make a quick decision on whether to accept the offer or not. The buyer is hoping to win the home ahead of other potential offers and kill off the competition for the home.
Bully offers from the home buyer's perspective.
If you are on the buyer's side of the proverbial real estate fence, then the pre-emptive offer is a strategy that might be effective in getting you a home that is likely to attract a lot of offers. When buying a home, you need to adapt to the prevailing market conditions.
For example, it's Wednesday and a new listing comes on the market, it's already generating a lot of buyer interest and all the signs are that it will receive multiple offers. The seller has set Tuesday as the offer review day.
The buyer views the home on Thursday and loves it! If they wait until Tuesday they know they will be competing with other offers and their chances of winning the home will be dependent on the number of offers and the strength of those offers.
The buyer decides that offense is the best strategy and wants to preemptively submit a strong early offer. The buyer has seen other homes accept early offers before the review deadline, so why not give it a go?
What is considered a good bully offer?
In order for an early offer to have a chance of being accepted, it must be enticing enough for the seller to be willing to accept it, take the home off the market, and give up the option of looking at any other offers. The offer needs to match or exceed the types of offers that are winning in multiple offer situations in that particular real estate market.
If homes in a neighborhood are selling for well above the asking price and the buyer submits an early offer at the list price, is contingent on an inspection, and is requesting that the seller pay $5,000 toward the buyer's closing costs, then that offer will likely only elicit a bemused smirk from the seller at best.
A good bully offer will contain some or all of the following (depending on the prevailing local real estate market):
- Is significantly above the list price.
- Has the fewest number of contingencies possible.
- Is not contingent on an inspection because the seller knows that the buyer can use that to get out of the sale.
- The buyer has good credit, solid financing, and stable employment.
- Cash offers are even better (no appraisal to worry about).
- Will comfortably pass an appraisal and/or the buyer is partially or completely covering a low appraisal.
- From the buyer's perspective, they need to minimize the amount of time that they give the seller to make a decision to prevent the seller from calling around trying to get better offers.
Sometimes you will see a listing go pending after only two days and assume that the seller accepted a strong early offer but then when it actually closes, you see that it sold for the list price. Some sellers get bad advice from their real estate agents and some sellers just want to be done with it and accept the first offer that comes in despite their Realtor's advice.
Can the listing agent refuse to pass an early offer to the seller?
Absolutely not! The listing agent is legally required to pass any and all offers they receive from a buyer's agent over to the seller no matter how good, bad, or ugly an offer to purchase might be.
Does the seller have to respond to a bully offer?
No. The owner is under no obligation to reply to the offer and can just let it expire and not play ball with the buyer. From a professional point of view, it would be courteous to at least acknowledge the offer and respond that the seller is not interested.
Can a bully offer backfire on a buyer?
The short answer is, yes!
There are some potential disadvantages to submitting an early bully offer.
The buyer might be over-paying for the home. By submitting a preemptive offer, the buyer will likely have to come in with their highest-and-best offer with no escalation addendum
Say the home is listed for $500,000 and the buyer offers 10% over asking ($550,000), and the seller accepts. Had the buyer waited until the offer review date, potentially they might have been the only offer and got the home for list price. Or there was only one other offer and they only had to escalate their offer to $510,000. The buyer will never know and essentially they are paying for the luxury of being the "only" buyer
Buying the home as-is: unless the buyer rushes a pre-inspection of the home before making an offer or is relying on a seller-procured inspection report, then the buyer might be buying the home as is without the option of negotiating repairs. If you're rushing in an early offer you might also be forgoing an inspection of the sewer system and the septic system as well.
The buyer reveals the market value of the home: By coming in with an early offer the buyer is notifying the seller that their home will get $550,000 and that seller may start thinking.. well if I wait until the offer review date I might get even more for my home!
The seller can leverage an early offer to get a better one: the buyer submits an offer at 11:00am that expires at 6:00pm on the same day. A savvy listing agent will use that time to notify other agents who have previously shown the home and inform them that the seller is "reviewing a strong early offer". It is not uncommon for the bully offer to be beaten by an offer that comes in later that same day. Also, this seller may come back to you and any other offers that have been submitted and say come back with your highest and best offer while trying to play all the buyers off each other to maximize the sale price.
Bully offers from the seller's perspective.
A homeowner decides it's a good time to sell but before going on the market, sellers and their agents should have a pricing and offer review strategy in place. They should discuss what to do in various scenarios such as reviewing offers on a set date or whether to accept the first good offer that comes in. Alternatively, maybe having to cut the price if no one makes an offer in the first 30 days. If the home is way overpriced you won't be getting any offers, preemptive or otherwise.
If you have set an offer review day to look at offers but receive an early offer before that deadline then you have to decide whether to play ball with that offer or ignore it and tell them to wait until the review date.
If you accept the early offer then that offer should be comparable to, or better, than the type of offers that are winning homes in your neighborhood. It needs to be an optimal combination of price and the highest probability of going all the way to closing without any issues. You do not want to take your home off the market for an average offer that subsequently fails when you could have received a better one had you waited.
Some sellers just want a quick sale and be done with the whole process and they're happy to accept a preemptive offer but some sellers will always be second-guessing themselves had they waited until the offer deadline and whether they would have received more money for their home.
A bully offer plays on the fear of the seller that if they don't accept the offer today then (1) that buyer may not come back with the same offer on the offer review date and (2) they may not get a better offer if they wait. In my experience, however, about 90% of buyers who submit an early offer will resubmit that offer on the review deadline.
If, for example, the seller has an offer review day of Monday and has already received four offers by Saturday, then they can have their listing agent move up the offer review deadline and let other agents know that offers are being reviewed early which would give other potential buyers a chance to submit an offer. That way the seller still gets to leverage multiple offers to get the best price possible.
At the end of the day if the seller gets a good offer that meets or exceeds their expectations and the home closes smoothly then, mission accomplished.
In summary, regarding bully, aka preemptive offers in real estate: it's a tactic used by buyers to try and beat out the competition and something that sellers have to decide whether to accept or ignore based on the strength of the offer or what they had decided in advance of going on the market. There are pros and cons for both the buyer and the seller but sometimes it's a perfect match for both of them.
This article was written by Seattle and Eastside Realtor Conor MacEvilly who has been in the business since 2008. I hope you enjoyed the post and thanks for visiting my website. If you have any questions about Puget Sounds area residential real estate feel free to contact me. I'm happy to help. My direct line (cell) is 206-349-8477.