What Is An Exclusive Listing?
When it comes to houses for sale in Toronto, buyers may find themselves being pushed out of the buying process faster than expected. Reality is, the Toronto real estate market moves fast. So much so that some listings are only up for less than a week before being sold. How does this happen? Well, there are a number of reasons. But, we’ll focus on one specifically: the art of the bully offer.
The term bully offer is one of the most commonly used and least understood expressions in real estate. Simply put, a bully offer is a pre-emptive offer. The purpose is to literally ‘bully’ other buyers out of the buying process. And, you do so by making an aggressive over-asking offer in advance of the prescribed offer date. This way, you can possibly avoid the competition by offering a sweet deal that the seller simply cannot turn down. Although, this is not always the case.
Bully offers are most common in a seller’s market whereby demand outstrips supply. Think about the central and downtown Toronto real estate market this last decade. In such market conditions, sellers will list a property intentionally lower than their target sale price. Reason being, they want to attract multiple offers on a specific date. This seller strategy is based on the hopes that multiple offers will push buyers to pay record prices for their property. And oftentimes, they do because of market scarcity, low-interest rates and implied competition.
Surprisingly, there seems to be a lot of confusion as to what constitutes a bonafide bully offer – even amongst agents themselves! As a broker on the listing side, I have seen far too many botched bully attempts as both agents and buyers tend to get confused. There’s uncertainty as to what constitutes a true pre-emptive offer that’s worthy of a seller’s consideration.
As a rule of thumb, a bully offer is generally significantly over the listing or asking price. Also, it’s almost always a firm offer, meaning no conditions. And, it’s presented with a sizeable certified deposit cheque. If the offer price is not enticing to a seller, they have nothing to lose in waiting for the bidding war to end. Further to this, if there are conditions (i.e. financing or inspection) a seller may view the risk of a conditional offer falling apart as unacceptable and will want to wait to see what happens on offer night.
An experienced buying agent will most likely give a very short irrevocable period (a set expiration date) on the offer. This is to ensure the selling agent is unable to round up more competitive offers. The longer the expiration date, the more it benefits the vendor. On the other hand, the tighter the expiration, the more it will protect the buyer from potential competing offers. Especially in a real estate market that moves at Toronto’s pace, the one thing to remember is that time kills deals. This is a basic concept that every buyer should know or will eventually learn over time.
The analogy I like to use when working with buyer clients is that it’s like going to a nightclub. There’s a lineup outside that runs down the street and around the corner. So, a nightclub goer who’s tired of being in the cold, chooses to pay the doorman “a premium” to bypass the line. In the same way, many buyers fed up with being out in the preverbal Toronto real estate cold (after losing out on several properties in bidding wars), sees the long-term benefit to paying a premium for a property.
When it comes to central and downtown Toronto, the listing price is somewhat irrelevant. Oftentimes, its a marketing tool to drive interest in a home for sale. Instead, you should consider these two questions:
It’s not always the case that these two values are the same.
Typically, these types of scenarios are very fluid and move rather quickly. This does not leave much time to think or organize yourself. Before you can realistically consider moving forward on a bully offer, you should familiarize yourself. Get comfortable with the process, paperwork, and level of commitment involved, as there will be little time for second-guessing. Bully offers are not for the faint of heart. As the buyer, make sure you’re knowledgeable about pricing in the area. This way, if you are in fact overpaying, you are aware of how much and are congruent with that outcome both rationally and emotionally.
Because these types of offers generally have no conditions, as a buyer, you have to be 100% clear on your financial situation. You must be able to firm up on closing with no issues or concerns. It’s important to have a contingency plan in place if any issues surrounding an appraisal were to arise. Should there be any doubts with regards to financing, it may be best to wait until you get your ducks in a row.
So, you’re ready to try the bully offer strategy. Here are two ways to help you win in Toronto’s fast-pace real estate market.
Go for the true old school bully: ram it down their throat. Meaning, submit an offer without discussion. Or in extreme cases, do so even when its explicitly been stated by the seller that they are not willing to look at pre-emptive offers. The idea behind this strategy is that, by law, a listing agent must present all offers that are registered. This forces the seller to look at your offer and respond with a sign back or an acceptance. With this approach, it can be very risky as it could offend a seller. It may come off as doing something against their instruction or you may have come in too low without actually understanding their true desired sale price. Furthermore, it could also backfire by coming in too strong, which may cause a seller to get cocky and want to see “what else is out there”. Like a poker game, this strategy runs the risk of tipping your hand too much before understanding what it is the seller really wants to achieve.
As an experienced broker, when representing a buyer, I choose to use a second strategy. This is based on the art of negotiation. First and foremost, this entails real dialogue and communication with the listing agent. In a seller’s market, where the seller is in control, it is important to listen. Try to get a clear understanding of the seller’s needs and ultimately, their desired outcome. Every property and every seller are different.
In any negotiation, I would always rather seek to create a win-win paradigm rather than broker a deal based on bully tactics. In the end, bully offers are never as constructive as you want them to be. And, they have a higher propensity to fall apart. By effectively gauging a seller’s openness to a pre-emptive offer, pricing, and close date expectations, you become better positioned to explore opportunities to make a deal in advance of offer night. I will often tell a listing agent that I have an interested and qualified buyer, and see if there is anything that would make it a done deal that day. It’s always best as a buyer agent to get a price out of the seller, rather than having to guess. Ideally, if all parties are in agreement, the preferred course of action is to come to terms verbally. And from here, the next step is to follow up with paperwork expeditiously with lightning speed so that no other buyers can jump into the fray.
As a buyer, before you can truly be in a position to consider going through with a bully offer, you really need to have done your due diligence up front. These types of scenarios are complex and never straight forward. There will always be many considerations, some of which will need to made on the fly. Because of this, you have to be comfortable with these situations. The bottom line is, have an experienced agent by your side – one that you feel you can communicate with and who has the skill set to listen, and who asks the right questions. This is especially important when talking to the seller’s agent. Your realtor should intuitively know when to push and when not to.
This article is written by Ralph Fox, Broker of Record and Managing Partner here at Fox Marin Associates. Ralph is a Torontonian native who recognized from an early age that the most successful people in life apply long-term thinking to their investments, relationships, and life goals. It’s this philosophy, along with his lifelong entrepreneurial drive and exceptional business instincts that help to establish Ralph as a top agent in the real estate market in downtown Toronto.