Question: What does it mean when a seller asks for the “highest and best ” offer. How do they determine what’s best?
Answer: A “Highest and Best” situation typically occurs when there are multiple offers submitted on a property. More often then not these are foreclosure properties that were priced lower than market value to generate immediate interest. Setting the price artificially below market value is a sales tactic intended to stimulate buyer interest and competition. The tactic can often cause the price to be bid up and net the seller a greater amount.
A “Highest and Best” situation is similar to a sealed bid auction. Multiple bidders submit their best offers by a deadline without knowing what others are offering.
When multiple offers are received, the seller will often request that all interested buyers submit their best offers by a deadline date and state that he will accept the highest and best offer received by that date.
Highest is just math, it’s simply the highest amount offered. The crux of the issue is “Best”. The highest offer is not always the “Best”. Lower offers may be considered “better” by the seller if they have a higher probability of closing quickly. Often a lower offer amount will be accepted by the seller if it meets certain criteria.
Generally sellers use the following criteria in the order presented to determine “best”.
- All Cash, “As-Is”, no inspections, no contingencies, close as soon as title work is completed (BEST)
- All Cash, inspection contingency.
- All Cash, inspection and other contingencies.
- Conventional financing, large down payment, “As-Is”, no inspections, no contingencies
- Conventional financing, large down payment, inspection contingency.
- Conventional financing, large down payment, inspection and other contingencies.
- Government backed financing. FHA, USDA, HUD etc., all require inspections and other requirements that may delay closing
- Designer financing. 203K loans and other little used or exotic financing products that are difficult and time consuming to qualify for or survive underwriting
If you are faced with a highest and best offer situation do not panic and over pay for the property. Consult with your agent and determine what the actual market value is. Make an offer that you are comfortable with and that you can commit to as your offer just might get accepted.