Article from: https://www.homelight.com/blog/multiple-offers-highest-and-best/
Received Multiple Offers on Your Home? ‘Highest and Best’ Will Tell You Who Wants it Most
by Emma Diehl Posted onSeptember 22, 2020/ 4-5 min read
You couldn’t be more relieved to attract an offer on your home, when another buyer throws their hat into the ring.
Then a third.
And a fourth.
Plus a couple more for good measure.
It’s official: Your house is a hot commodity. You’re flattered by the mounting interest in it… and admittedly, a little overwhelmed by the sheer volume of choices in front of you. You’ve got an incredible opportunity to make the most of this deal, if only you can avoid tripping up before closing. Your biggest fear? Picking the wrong offer.
As a next step, your agent suggests going with a “highest and best” strategy to see if any of these offers rise to the top of the pile. But you’re a little fuzzy on the details. Will asking buyers for their “highest and best” scare some away? Should you instead chat with each buyer 1:1 to craft a deal?
With a ton on the line, you deserve to be confident in your bidding war strategy. Read on to get a full 360-degree explainer on the risks and rewards of asking buyers for their highest and best, with tips on how to pick a winner depending on your unique priorities for this sale.
Source: (Stokkete / Shutterstock)
How does the “highest and best” tactic work?
In a multiple offer scenario, a seller may choose to employ the “highest and best” offer tactic, rather than wade through each offer in detail and negotiate with multiple buyers at the same time. In effect, you ask buyers to bring their shiniest offers to you by a specific deadline — such as “Friday at 5 p.m.” This type of message alerts buyers that their offer is not your only option. It also compels them to put their best foot forward and hold nothing back.
You can break “highest” and “best” into two distinct parts. When you instruct buyers to bring their highest offer, it encourages them to raise their price (very important and probably what you’re most focused on). The “best” component refers to all the other terms included in a contract that can be tweaked to sweeten the deal — such as waived contingencies, putting down more cash upfront, or offering a more flexible closing date.
‘Highest and best’ vs. ‘Highest, best, and final’
The “highest, best, and final” strategy — sometimes simply called “best and final” — means that each buyer who has submitted an offer will have one shot to put forward their most attractive price and terms. From there, the seller will select an offer outright, rather than start further rounds of negotiation with each individual buyer.
“Highest, best, and NOT final,” means that once a buyer has been outbid, the listing agent notifies each buyer, giving them a new deadline to meet the current offer, or pull their offer altogether. This can go on for a number of rounds until there’s one buyer left, or the seller accepts an offer.
Philip Unger, a top-selling real estate agent in North Haven, Connecticut, usually recommends “highest, best, and final” to his seller clients. This can shorten the negotiation process, and might even push buyers to make a higher offer under the pressure of only getting one chance.
“As a seller’s agent, if I have multiple offers, we’ll tell buyers, ‘We want your highest and best offer by Tuesday at 5 p.m.’ and that’s it,” says Unger.
But you should talk over each strategy with your agent and determine what you’d prefer.
Source: (Ron / Unsplash)
Why should a seller use the “highest and best” tactic?
In a multiple offer scenario, asking buyers for their highest and best can pay off for the seller in several ways:
Fast track the process.
Most sellers would prefer to sell sooner than later. If a seller chooses to ask for the highest, best, and final offers from multiple buyers, they won’t have to deal with the back and forth of negotiating. Each round of offer and counteroffer happens over a 24-48 hour window, adding delays to your timeline.
Push the buyer to make a better offer.
Asking for a highest and best offer might push the buyer closer to your target sales price, because it shows there’s real interest in the property. In negotiations, buyers won’t typically start with their highest offer with the goal of leaving a little wiggle room. But asking for the “best” offer yields more favorable terms for the seller in a more immediate fashion.
Is there a time to avoid ‘highest and best’?
Under the right circumstances, asking for a buyer’s highest and best will make the sales process easier, and might even mean selling your house for more. However, there are some instances where the tactic won’t fly.
Before you have multiple offers.
In Unger’s market, he’s seen some listings ask for the highest and best on the very first day the home is listed. While a seller may legitimately be expecting a multiple offer scenario, that language can scare away potential buyers, and it comes off a little arrogant. “I have to laugh, because two weeks later, the properties are often still on the market,” Unger says.
You overestimate your market.
Even in a hot real estate market, sellers need to have realistic expectations as to what their property will sell for. Asking for highest and best when offers are already on the high end of your property’s estimated value could lead to the property appraising under contract value — which means an even longer negotiation or a deal falling through. Remember, the offer isn’t everything; you still need to make it to the closing to seal the deal.
Source: (Daniel Mingook Kim / Unsplash)
Picking the right offer: It’s not always just the highest
Remember, in a highest and best scenario you’re asking the buyer for both highest price and best terms.
Unger’s red hot market, he recently sold a home that received 18 offers on it. Offers were coming in so quickly that at one point, “it seemed that I had more offers than showings,” he recalls, “which just felt insane. It was almost more than any of us could handle.”
To combat the confusion, Unger entered each offer into a spreadsheet so he could clearly outline the terms and finances behind each buyer’s interpretation of “best and highest.”
With everything from 50% down to closing cost assistance, the offers ran the gamut. While some sellers might get caught up on the highest offer, prioritizing other elements can drastically change the trajectory of the sale, for better or worse.
Say you ask your buyers for their highest and best offer on your home, initially listed for $250,000 and receive these terms:
Offer A
$260,000 offer with financing and inspection contingency, 60-day close.
Offer B
$248,000 offer with all contingencies waived, 30-day close.
Offer C
$250,000 offer with financing and inspection contingency, largest earnest money deposit, 60-day close.
So, which one is the best offer?
Well, it depends on your goals as a seller.
Do you want to be out of the house sooner? A short closing window could be ideal. On the other hand, an earnest money deposit can show that a buyer is serious, even if they have a lower offer. Finally, getting above asking price means more cash at closing, but contingencies can throw a wrench in the plan.
Ultimately, Unger urges his sellers not to get too mixed up in the price tag, “the goal is to get to the closing table, which offer is going to be the strongest that’s going to get you there the fastest? What will get you the most money as fast as you can?”
Accepting an offer with multiple contingencies translates to more opportunities for the buyer to back out and the deal to fall through. Then, it’s back to square one and racking up days on market. If you’ve got somewhere to live lined up, a shorter closing date means money in your pocket sooner.
For many, that makes Offer B compelling, even if it’s below listing price since it means money in your hands sooner, and more skin in the game for the buyer. While there’s no “right” offer, sellers need to consider more than just price when entertaining their options.
With ‘highest and best,’ you’re in the driver’s seat
In a multiple offer scenario, the highest and best tactic can push your listing to new heights, whether that be offers above asking price, shortening of the sale, or removal of contingencies. It’s easy to get blinded by dollar signs, but remember, the tactic is highest and best, not just highest. Think about which offers remove risk, and get you on your way with the least effort possible — because as a seller, there’s nothing more relaxing than a deal that closes on time with few surprises.
Header Image Source: (Mia Baker / Unsplash)
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Emma Diehl
Contributing Author
Emma's work has been featured in Huffington Post, NPR and XOJane. When she's not combing her neighborhood for open houses, she's writing about technology, real estate or data.
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