Highest and Best Offers

What is a highest and best offer? When a seller receives multiple offers on their property usually they will ask all interested buyers to submit a final offer by a certain time and date. The idea is that this is the highest amount the buyer is willing to p ay with the best terms possible and is typically called "asking for highest and best offers." Usually there is no additional negotiation other than perhaps asking the buyer to change a closing date so interested buyers should offer the maximum amount of money they are willing to pay for the property as typically this is our one last chance at getting the home.

How do you put together the highest and best offer? There is a lot more than just purchase price in a highest and best offer. Here are some other items you need to consider when putting together this offer as well as strategies to help you win in a highest and best offer situation:

• If you're using a mortgage to buy the property, talk with your lender if you're increasing your purchase price by a lot. You don’t want to find out that you can’t qualify for the amount of money you’re offering if you go above the list price.  So be sure to check with your lender that you can qualify to purchase the property at the price you want to offer, especially if that price is higher than the max amount listed on your preapproval letter. If the amount you want to offer is higher than the amount listed on your preapproval letter, please ask your lender to send us an updated preapproval letter with the new maximum amount on it as the amount on the preapproval letter has to match or be higher than the price we're offering for the home. Also, you need to be comfortable with what the monthly payments will be at that higher price so be sure to check that with the lender.
• Consider a price escalation rider (click on the link to learn more about price escalation riders).   These allow you to not have to blindly guess at a purchase price to win the home and allow you to pay a certain amount of money over the next highest offer. We're a big fan of price escalation riders and suggest using them in almost every highest and best offer situation. 
• Closing Date: We will check with the listing agent to see what closing date the seller wants.  Try to be flexible and make the seller's preferred closing date work.  Most lenders need 30 - 45 days to close so if the seller wants to close in less than 30-45 days talk with your lender and make sure they can close the loan that quickly. If you're paying cash, you can typically close in 14-21 days if needed.  , try to have a short closing day (45 days with a mortgage and 21 days with cash) unless the sellers have a specific closing date in mind and limit your contingencies (ie: if you have a house to sell prior to this purchase). The cleaner the offer, the higher your chance of having your offer accepted. 
• If the property is owner occupied and the seller still needs to find their next home, consider offering a quicker close but then allow the seller to stay in the home (called post possession) for a certain amount of time after closing (usually the max they are allowed to stay in the home is 60 days if you're using a mortgage to buy the property). Some buyers will allow them to stay in the home rent free and some buyers charge minimal rent during this time.  This often puts the sellers in a better position to buy their next home as they don't have to make that purchase contingent on selling the current home since it's already sold so this can be a really attractive option to sellers. It does come with some risk so if you're interested in this option let us know and we can discuss the pros and cons with you.
• Increase the earnest money:  Typically if you're buying a home that costs less than $1M most buyers put down a total of 5% in earnest money. If you're purchasing a home that costs more than $1M most buyers put down 10% in earnest money. If possible consider increasing your earnest money. The more earnest money you put down the more confident of a buyer you'll seem financially.
• Increase the down payment: It can be very difficult to win multiple offers if you're putting down less than 10 - 20% as it makes you a shakier buyer financially speaking than someone putting down 20% or more so consider increasing your down payment,  if that's an option.
• Don’t be too picky: sellers want to work with an easy buyer. Talk with your Realtor and come up with reasonable requests. For instance, we don’t suggest asking for a home warranty if you’re in a multiple offer situation or their child's play set unless they've already said it can stay.
• Consider an As Is offer: an As Is offer means you can do an inspection, but you won’t ask the sellers to make any repairs or give you any money to put towards repairs. You are agreeing to buy the property As Is.   After the inspection you can choose to walk away if you aren’t comfortable with the inspection results, but you won’t ask the sellers to fix anything if you choose to move forward with the purchase.   This is often a winning strategy and one we highly recommend as sellers love As Is offers.
• Have your lender call the seller’s Realtor and assure them that you are a strong buyer and won’t have any issues qualifying for the loan.
• Write a seller love letter telling the seller about yourself and why this is the perfect home for you.  This may seem cheesy, but it often works. If you'd like examples of seller love letters, just let us know and we can email some to you.
• Offer to pay any difference between the appraised value of the home and the purchase price in cash. When purchase prices go up a lot above fair market value sellers often get concerned that the property won't appraise for the high purchase price.  If it doesn't, then the bank won't give the money to the buyer for the buyer to buy the property at that price so consider offering to pay the difference in cash. For instance, if a property is selling for $525,000 but only appraises for $500,000 then the buyer would be agreeing to pay the additional $25,000 out of pocket in cash in addition to their down payment and closing costs.  This can be a very good strategy for winning in multiple offers as well, but you have to have the extra cash to bridge any gap between the appraisal price and the purchase price.

Why do sellers ask for the highest and best offer? It gives all bidders an equal opportunity to have their offer considered and it shows how committed a buyer really is.