Can a 'bully offer' help you buy a home?

What prompts the appearance of bully offers?

"Here in Calgary, how many bully offers have I seen between 2015 and June 2021? None. Not one. Now, almost every time I list a house, I'm seeing at least one bully offer come in."
– Matt Forbell, Realtor with Park Real Estate Associates

Already routine in intense housing markets, such as Vancouver and Toronto, this tactic can pop up in areas of tight supply and/or high demand. According to Calgary-area realtor, Matt Forbell, bully offers have quickly become a fixture, right along with a recent rapid rise in sales. "It's a very strong seller's market here right now. Bully offers are coming in at least 10% higher than list price, and 98% of the time, they're clean, with no conditions at all," he states.

They're a manoeuvre in response to 'frustrated-buyer syndrome,' when the traditional process explodes into multiple offers or bidding wars, leaving spurned buyers ever more desperate. And sellers themselves may purposely encourage more competition by listing a home at a lower price to drive up interest, and ideally for them, the final sale price.

Jilted buyers resolve to get ahead of the competition next time — and look at this pre-emptive strategy to notch the win.

When does a bully offer come in?

According to Matt, a bully offer intends to 'blindside' the seller with an offer they weren't expecting. Here's an example of when a bully offer can show up in a typical home-buying process:

• A home for sale is listed on a Thursday, allowing enough time before the weekend for realtors and/or buyers to see the listing and arrange to view the home.
• Viewings can occur between Thursday and Sunday afternoon.
• If there's immediate interest, the seller will set time aside Sunday evening to sit down with realtors to review offers. This is the traditional offer process and the point where multiple offers or bidding wars may begin.
• A bully offer could make an appearance anytime between Thursday and Saturday, after a buyer either views the home or gets word-of-mouth from a realtor. The clock is ticking to arrive well ahead of other offers, to use time to its advantage.

Can anyone put in a bully offer?

A home buyer can submit the offer on their own (usually through a lawyer) or through a realtor, who is obligated to present it, unless explicitly told that pre-emptive offers will not be entertained.

A bully offer is typically made by a buyer who is:

• Frustrated by previous offer rejections or who really wants to make a play in hopes of a successful bid
• Ready for this course of action with either a very 'solid' mortgage pre-approval or by arranging an equally-sound outright cash offer
• Offering an amount above list price (often 10% or higher) to sweeten the bid, and sometimes with a larger-than-required deposit (more cash upfront can be persuasive)
• Waiving some or all conditions of sale, such as financial approval, sale of another home, or a home inspection (all risky prospects)
• Able to close the deal based on the seller's timeline, not their own (e.g. quicker closing date)
• Basing the offer on only a first viewing, a video tour by a realtor, or even 'sight unseen' (relying on online photos or realtor word-of-mouth)

Is a bully offer risky?

"There can be substantial risks in placing a bully offer, yet some buyers feel strong pressure to take off conditions to appeal to the seller for a quick sale. A buyer should be completely aware of how they may be affected," states Matt.

Leaving off any typical conditions of sale, such as financial approval or home inspection, can leave you financially or legally exposed (or both) if something goes wrong — you could forfeit the home, lose your deposit, and face legal action.

Remember, that if your bully offer is 'clean,' meaning no conditions at all — once the seller accepts it, the home is legally yours. There's no grace time to wait for lender approval or to confirm the sale of a home if you need to secure a mortgage or cash for the deal. You can't go back to the seller to fix certain issues uncovered by a home inspection, because you weren't able to do one.

You're now on the hook for both the purchase price (did you get overzealous and overpay?) and any issues with the house itself. Read about more risks here.

How can you reduce your risk?

• Work with an experienced realtor. You'll only have one first chance to make an impression. A realtor can help form your best bully-offer strategy, and whether you really need all conditions off to appeal to the seller.
• Have an expert mortgage broker in your corner. Be financially prepared! The right broker will have your best rates, flexible options, targeted advice, and access to several lenders for a solid pre-approval or an alternative lender, if needed.
• Bring a professional home inspector with you. You won't have much time to decide on a bully offer, so for that important first viewing, consider a 'walk-through' inspection. It'll only allow 30 minutes (compared to 2+ hours for a comprehensive one), but it may be the extra set of eagle eyes you need to decide on whether to place the bid.
• Does the seller have a previous home inspection report? It'll likely be outdated, but if the seller is willing to provide one, it may provide some insight into the state of the home. Keep in mind that they selected the home inspector, not you.
• Put aside extra funds. You may need to shore up your lender approval, or pay unexpected home repairs later. Your broker can help you decide on the right strategy for a backup plan.

Is the seller likely to accept a bully offer?

It really depends. Even with an above-list price or waived conditions, the seller may have set expectations on what they want to see. Others might not appreciate the insistent nature, preferring instead to behold a full range of offers. Of course, some bully offers ARE successful — though not always right away.

Here's an example of a recent 'rejected' bully offer for one of Matt's clients. In this case, their strong offer came in 10% above list price and waived all conditions except financing (they had a strong pre-approval, but didn't want that level of risk). Matt also suggested they write a letter to demonstrate their character, plus include the lender's pre-approval document.

But, the seller rejected his client's bully offer based on the financial condition, feeling it was too risky to wait when they hadn't seen any other bids. It was re-submitted as part of the traditional process. "The sellers received a few clean offers, but for a lower price. The character and pre-approval letters in support of their original bid convinced the sellers to accept. The financing condition was met shortly after, and the sale was final, with everybody happy," says Matt.

So, you can still place a traditional bid?

Yes. If your bully offer didn't budge the seller, you can still be a part of the normal offer process. You may have an advantage, as you've already been introduced to the seller, plus you can try to change aspects that may be successful the next time around. However, if your bully offer already stretched your finances and conditions to the limit, you may be out of luck for that particular house.

Does a bully offer affect your mortgage pre-approval?

Depending on your financial situation, it may not affect your mortgage process at all. Since you're not likely to be pre-approved for more than you can afford (based on factors such as your down payment, income, debt and credit standing), if the home you want is well within your price range, your mortgage pre-approval should provide the backing you need for your pre-emptive offer.

But here's the rub. If you're dealing with higher home prices and make an offer beyond your ability to afford it — or there are unconventional property details that make the purchase riskier for the lender (e.g. did you buy a log home??) — you're at risk of not receiving financial approval for your loan, despite your pre-approval.

A knowledgeable mortgage broker can help outline your lender and rate options, AND a sound mortgage strategy, so that you have a thorough understanding of how far you can stretch your bully tactic.

Two smart things to do after your bully offer has been accepted.

After dancing for joy to celebrate your new home, the smartest thing you can do if you bought with a mortgage loan is to connect with your mortgage broker asap to ensure the financial details are covered.

And next? If you weren't able to do a full home inspection, book one right away, whenever you'll be allowed access to your home. It can provide you with a fuller picture about your new digs, and help you budget for upcoming maintenance and fixes.

How do bully offers affect house prices?

Of course, the knock against bully offers by many real estate experts and home buyers alike, is that they can lead to inflated home prices. Bully offers don't exactly help to keep house prices down; their pre-emptive nature can fuel higher-than-list prices and there's always a chance that the house would have sold for less the traditional way. That higher price will be factored into the local pricing system, with potential to artificially hike upcoming area listings and impact home affordability for many.

Plus, other interested home buyers consider the tactic unjust, by not allowing the traditional process to unfold to give them all a chance at making an offer. Does a pre-emptive offer automatically remove the 'market' aspect from housing by not allowing fair competition? The answer likely depends on which side you land on, the winning or losing bid.

Finally, is a bully offer worth the reward?

If you have a plan you feel good about and can accept the possible risks that you've taken on with your bully offer — getting a home and walking through your own front door is (obviously) the best reward.

Many of Canada's housing markets are highly competitive right now, made harder by blistering home prices and ever-rising inflation. Fair or not, many potential home buyers are doing their best to either enter the real estate market, or make their next lifestyle move. And, they're taking advantage of whatever strategies they can to make it happen.

Preparing for a pre-emptive strike?

Get sound, expert advice — and hold your best rate now.

If you're considering a bully offer, make sure you know where you stand. Our expert True North Mortgage brokers can take you through your pre-approval rates, lender options and important financial details. Plus, we can hold your best rate for up to 120 days to help you save when you pull the bully-offer trigger.

Be prepared. Talk to us. We're here for you, anywhere you are in Canada.