The term “highest and best offer” is increasingly becoming popular during home buying negotiations, but what does it mean, and how will it affect your property purchase? There are factors that you need to be aware of when you find yourself encountering this buying situation. This situation is becoming increasingly common due to the lack of inventory on the market.
Highest and Best – What Does it Mean?
You may encounter this phrase when buying a home, and the seller asks for your highest and best offer. In competitive housing markets, it is something you are far more likely to hear. Normally, sellers will take offers and negotiate with the buyer to reach the final price. Asking for the highest and best offers, lets all potential buyers submit their offer by a certain date.
This might appear to be a fair way to sell a home, giving all interested buyers the chance to make their best offer and terms of purchase. Though with many people making offers, it can be difficult to win, and your real estate agent may provide some invaluable assistance in these situations.
If you find yourself in a situation like this, there are some things you should avoid, let’s review.
What to Avoid With the Highest and Best Offer
It is not just the offer amount when you are making an offer on a home. The home buying process includes the terms that you are offering to the seller. One of the common mistakes when facing this type of situation is to only increase the offer amount. Instead, it is better to improve the terms if you can.
Just increasing your offer amount might not be enough or the most important factor for the seller and it might tip the scales in your favor. However, if there are multiple offers on the table at similar amounts, the deciding factor might be the terms you are willing to take. It could mean reducing your contingency periods so that the sale goes to closing faster, or the money you put in escrow. In a purchase agreement, there is a contingency period for the home inspection which the default language is 17 days. This is negotiable. Another contingency period would be for the loan if the buyer is obtaining financing. It is imperative to communicate with the lender about reducing that from the default of 21 days to a lesser number of days. Also, avoid asking for concessions from the seller unless it is absolutely necessary.
Another way to make the offer more appealing is to increase the amount of the earnest money deposit. This shows the seller that you are serious about depositing money into escrow. A seller is not going to take their home off the market unless the buyer has some skin in the game. A strong earnest money deposit shows good faith to the seller that you are serious about buying the home.
It is important to make sure any offer is put in writing. Your real estate agent can do this electronically to make sure you stand the best chance of winning. If there are two similar offers, the seller is far more likely to go with the firm’s written offer. When increasing your offer, you need to make sure you provide the documentation to prove you have the funds available, just verbally claiming it may not be enough.What Does Highest and Best Mean When Making an Offer?Click To Tweet
Be sure to provide a bank statement demonstrating that you have the funds available for the downpayment and closing costs, and a current pre-approval letter from your lender. There are reasons why a buyer may not get approved for a mortgage, and it is imperative to get pre-approved before you start home shopping. The listing agent may want to speak with your lender, so do not be off-put if that request is made.
Submitting the Offer Too Late
While the last bid in an auction is the winner, this isn’t the case with the highest and best offers on a purchase. Sometimes the seller will accept an offer before the deadline, and if you leave it late, you’ll miss out even if your offer would have been better. The seller might get the offer they were looking for and not want to lose the buyer.
Timeliness is crucial, especially with multiple offer situations.
Submitting your offer can all be done online, with documents sent and signing done electronically. Many Realtors utilize DocuSign for an electronic signature to expedite the process. This makes it very easy to provide an offer to the seller, so there’s no reason to delay.
The Realtor you use for the purchase of your home and the lender you select could have a significant effect on the outcome of the highest and best offer. It is essential that you select and work with a professional Realtor who understands the importance of timeliness. If your lender doesn’t step up and provide you with a new pre-approval letter when you need it, you could miss out. Having a lender that is more proactive in helping the situation along could make the difference in a competitive market.
Your buyer’s agent can improve your chances of having the winning offer by finding out what the seller is really looking for. There are steps to home buying that you need to be aware of before you make this offer. They need to be willing to ask the right questions to the listing agent, so they can discover what the seller wants from the deal. If they have experience in these buying situations, they should be able to advise you better, so that your offer wins without spending more than you needed to on the home.
Don’t Give Up Everything
I have had agents ask me to ask my buyers to remove all contingencies with an offer in order to be competitive. That is a pretty tall order in my opinion. What if the buyer does that and then discovers a major defect in the home with the home inspection, and they now want to try to get out of the home purchase. It is important to consult with your Realtor about maintaining some contingencies in order to protect yourself as a buyer.
In a hot housing market, with multiple offers on the home you want, you need the experience of professionals that know the right approach. They need to have the knowledge to assist you through the process so you get the outcome that you’re looking for.
With the right people helping your offer, you should be able to put together a winning deal that gets you the home you want. If you can be more flexible on the terms of the sale, so much the better. But don’t be pressured into giving up the most important contingencies, like the home inspection. Make sure not to delay when putting your offer on the table, and be sure your documentation supports the offer.
Bill Gassett has written an excellent article about How to Win a Bidding War when purchasing a home. In the article he discusses coming up with the highest price, utilizing an escalation, and more tips to help you win in a bidding war.
What Does Highest and Best Offer Mean in Real Estate written by Michelle Gibson provides an in-depth definition of how to present the best offer to achieve the goal of purchasing the home.
About the Author
Top Newport Beach CA Realtor Sharon Paxson with Newport Beach Real Estate has written the article “What Does Highest and Best Mean When Making an Offer? ”.
Sharon has been specializing in residential real estate since 2005 throughout Newport Beach CA and the surrounding area. Whether you’re looking to buy, sell, or rent she will guide you through the entire real estate transaction. If you’re ready to put Sharon’s knowledge and expertise to work for you call or e-mail her today.
Areas of service include Corona del Mar, Huntington Beach, Newport Beach, Newport Coast, and more coastal Orange County communities.