In a seller’s market, it’s common for home sellers to appoint a specific date in the future to receive offers on their home. This strategy is commonly referred to as ‘holding offers’.
The purpose is for a seller to allow time to generate significant interest from home buyers in the hopes that it will create an atmosphere of competition. Competition will drive up the price of a house and often encourage firm offers, both of which are highly attractive outcomes for a seller.
The strategy tends to work very well, which is why many real estate salespeople utilize the method.
This offer date itself can be identified on the MLS® listing. REALTORS® will usually bring this to their clients’ attention before a showing, aiming to prepare them for a potential bidding war.
So what typically happens on offer day? What do buyers need to know?
Step 1: Pre-emptive or ‘Bully’ Offers
When: The Day of the Showing
The first step for a buyer to take is to determine with some certainty that the seller will not consider offers before the appointed day. These early bids are referred to as pre-emptive or ‘bully’ offers.
Some sellers are open to receiving offers before the selected date, while others hold firm to the schedule, refusing to review any bid that may arrive beforehand. Your real estate salesperson will know which set of circumstances you are dealing with because the MLS® listing will include a notation if the seller is not prepared to review early offers.
If no such notation exists on the listing, it’s likely the seller is open to early conversations. However, be sure to ask your real estate salesperson to verify this is the case with the listing agent.
Once your REALTOR® has determined that you are not able to submit an offer before the selected date, you move to the next step.
If you are indeed able to submit an early offer, get ready to pull out the big guns. Sellers open to receiving bully offers will have exceptionally high price expectations. After receiving the offer, the seller must decide whether to accept it, counter the offer, or reject it entirely.
While the first two scenarios could potentially end well for you, the third will not. Rather, is likely to only reveal your hand and further elevate the pricing bar on offer day. In other words, you will be giving the sellers a preview of what to expect if they waited until the appointed date.
Next, submitting a bully offer on a house that has an assigned offer date will trigger another protocol. Should an early offer arrive, the listing agent is required to notify all potential buyers through their REALTORS® that an offer has been submitted. They will then instruct them to submit offers according to a new schedule and deadline.
The upshot is, bringing a pre-emptive offer in the hopes it will allow you to sidestep a bidding war is not likely to be successful. Listing agents have a code of ethics requiring that in competition, the playing field be kept as level as possible. This means that all potential buyers must be kept apprised of any developments that may shape the outcome.
Step 2: Select Your Offer Price
When: 1-3 Days Before the Offer
In preparation for the offer, your REALTOR® will walk you through comparable houses in the area and help you understand the market value of the home you plan to buy. Houses recently sold that are similar to the subject property will be reviewed with each home’s key selling features taken into consideration.
Once you have identified the approximate market value of the home you wish to buy, it’s time to decide on your offer price. Remember that in the current market, the listing price of the home is likely to be well under market value. This is done to encourage competition. As a result, you will want to pay close attention to the sold price of the homes in the area rather than the listing prices and let this guide your decision.
The final step in selecting your offer amount is simply to choose a price that best represents the property’s value to you. Whatever number you decide on, ensure that it is your very best offer right out of the gate because you may not get a second chance. The seller may not allow the opportunity to raise your bid. They may simply accept a higher offer, at which point you are out of the running.
Once you decide on your approximate offer amount, a good test of how much you want the house is to imagine how you would feel finding out that someone else bought the house for $1000 more than you. If you are truly comfortable with that scenario, then you know you have arrived at the highest number you are willing to pay.
Step 3: Preparing The Offer
When: Offer Day
On the day the offer is to be presented, your REALTOR® will send you offer documents for electronic signature.
The first of these forms is to register the offer with the listing brokerage. The purpose is to alert the seller that an offer will be coming. It will not reveal anything about how much you plan to offer, or any other terms or conditions.
Often REALTORS® will send this form early in the day, a virtual hand-waving to the other brokerage advising them of your intention to submit an offer.
As the time gets closer to the appointed deadline, your REALTOR® will be monitoring the market interest in the home. As each offer gets registered, the listing agent will alert all participating real estate salespeople. As such, your REALTOR® will be keeping a running tally of offers submitted.
You will not be told about the contents of those offers, but you will know how many buyers are participating. The level of interest in a property can be measured reasonably well by the number of offers a house receives. The more offers that arrive, the higher the price required to secure the home.
At various points during the day, a buyer may decide to withdraw from participation. This would involve simply alerting your REALTOR® to your intention, and they will ensure your offer registration is removed from competition.
Step 4: Submitting The Offer
When: Offer Deadline
Now that you have determined you wish to proceed with your offer, you have one last opportunity to make a final judgment call on the offer price. Working with your REALTOR®, you now select a purchase price to enter on the Agreement of Purchase and Sale. This document will then be sent to you for electronic signature, and subsequently forwarded to the listing agent.
This represents your offer on the home.
Then, at the appointed time the listing agent will review all offers with the seller. This part of the process usually takes one or two hours, although it will depend on how the seller and their agent have organized the day. Some sellers request 24 hours to review offers while others can make the decision more quickly.
Step 5: Waiting
When: After Offer Submission
Once a seller has received all offers, there are three potential outcomes.
First, they may simply accept one of the offers. If so, the house is sold.
Second, the seller may enter into negotiations with one of the buyers.
Third, a seller may reject all offers and request that the participating buyers improve their bids. This is a risky proposition for a seller. Remember, buyers have gone through a lengthy thought process to arrive at a price that is the maximum they are able to pay. To have a seller return this verdict has the potential to turn off a buyer. Some will indeed walk away, leaving the seller with fewer offers to consider.
Once the seller has a made a decision, your real estate salesperson will be notified.
There are nuances to every competitive offer situation that will affect the outcome. The key to winning in a bidding war is in your preparation. Ensure that you are seeking guidance from your REALTOR® so you have a clear understanding of the landscape before embarking on the process.
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