BIDDING WARS & BULLY/PRE-EMPTIVE OFFERS
A bidding war is a marketing strategy where the seller and the agent agree to a listing price, usually set below the value of a home, and a date to be viewed by them, often less than a week after the listing has been on the market and shown to prospective buyers. The listing agent and the seller receive the offers, one by one, and in complete confidence of the others. Once all offers have been received and reviewed, they will discuss the pros and cons of each in private. The seller ultimately chooses which one they prefer and accept it, or they may decide to continue negotiating, usually with the best offer, to reach a sale with agreeable terms.
The process works well in a market where there is a tremendous shortage of homes for sale, and there are many buyers, and home prices are rapidly rising as they were between 2013 and 2017. The buyer who wins this contest usually has an unconditional offer that was substantially over the asking price. In the spring of 2017, that amount was often as much as 20% or more, with ten or more offers and a buyer that had usually offered and lost on 2 or 3 properties previously.
The buyers’ agent submits a bully or pre-emptive offer before the set date that the owner wants to look at offers in an attempt to bypass the frenzy of the bidding war. It is entirely up to the seller if they wish to see and or deal with it. In this instance, the offer is usually substantially over the list price and with no conditions.
Both of these situations require considerable expertise, negotiation skills, and confidence in your agents’ abilities. A statistically-based understanding of the neighbourhood’s recent sales, credibility with the other agent, and strong sales skills are imperative to be successful in these situations.
For the seller, pricing the home low may bring the wrong level of buyers, and pricing too high may bring no buyers or not enough to achieve the price expected, thereby leaving the seller in a very precarious position. What do you do now that a home potentially has been tainted with future buyers?
Representing a buyer and advising on whether they should attempt a bully offer is also a specialized skill set. In this situation, you usually will pay too much, but hopefully not as much as you would in a bidding war. The question is how much and when will the market catch up to what you paid. Again, this requires a strong knowledge of the specific area, trends, and the ability to predict future increases.
There is a lot more to maximizing your return in these situations. Your agent needs to be fluid and responsive. You need to have the confidence in your agent to move quickly and decisively. If you have any other questions, please contact us.