How to Win Highest and Best Offer!

I have been involved in many multiple offer situations as a buyer, seller and listing agent. I just made an offer on a short sale late last week where they received multiple offers and they have asked for highest and best. There are many different strategies you can use when trying to win a highest and best situation. It is tough to know exactly what to do revise in your offer and how mush to raise your offer in a highest and best situation. The biggest problem in any multiple offer situation is you don’t know what other buyers will offer. All you can do is analyze the situation as best you can and make the best offer you can based on your own numbers and needs.

As an investor myself I have won and lost many highest and best situations. A key to my investing strategy is buying homes below market value and I detail many of my strategies in my complete guide to purchasing long-term rental properties.

What is highest and best when there are multiple offers present?

Highest and best has become more popular in the last few years due to decreasing inventory and increased buyer demand. I am a HUD and REO listing broker and I am in highest and best situations all the time on my listings and as a buyer. Highest and best is when a seller receives more than one offer on a property and they formally let every buyer they have multiple offers. In the sellers formal request the seller gives each buyer a chance to raise their offer and a date and time all offers must be received by the seller.

I list a lot of bank foreclosures and banks use highest and best in almost every situation when they receive multiple offers. Banks can take a long time to respond to offers they receive and some banks have policies that they will not review offers until a home has been on the market a certain amount of time. Because of these policies, banks end up with multiple offers on many of their properties. The banks started asking for highest and best to give every buyer a fair chance to revise their offers. In a highest and best the bank notifies every buyer they have multiple offers and to submit their highest and best as soon as they receive more than one offer on a property (unless the home is under contract already).

I am now seeing many traditional sellers (not banks) using highest and best as well. In the past, most traditional sellers may let all buyers know there received other offers, but not officially ask for highest and best. With so many highest and best situations arising you need to know the best way get a highest and best offer accepted and how to deal with a multiple offer situation where highest and best is not officially asked for.

Do not be scared off by a highest and best situation

Many buyers do not like it when a seller asks for highest and best. I hear buyers say; “they don’t want to get in a bidding war” and they withdraw their offer. If you want to get the best deals you have to take part in highest and best bidding wars. The worst thing that can happen is you get beat out, so why not try? Why not leave your offer the same as your original offer and if you get it great, if not move on. Here is a great article on how to make an offer that will be accepted.

Why do banks use highest and best when they receive multiple offers?

Banks don’t use highest and best to **** off buyers, they have a good reason to use it. The biggest reason the banks use highest and best is they want to formally give every buyer notice of multiple offers and give them a chance to raise their offer. Banks have gotten sued a lot lately and they want to do everything by the book, with paperwork to prove it. Highest and best is ultimately the most fair way to handle multiple offers.

Banks and traditional sellers also use highest and best to try to get the most money they can for their house. They are the owner of the house and they have every right to try to maximize their profit or cut their losses.

For great information on how to get a great deal on investment properties, check out my E book: How to Buy Real Estate Below Market Value available at Amazon as an 80 page E book or in PDF. The book is only $4.99 and contains great information on how I buy real estate below market value for fix and flips and long-term rentals.

Getting information from the listing agent about other offers

If you are dealing with highest and best you probably have your real estate agent and the seller has their own listing agent. You can’t exactly talk directly to the listing agent, but you need your agent to get as much information as possible. Here are some great questions to ask:

1. How many offers are there?

2. Are any of the offers cash?

3. When is highest and best due?

4. What is the highest offer you have now?

5. Is there anything special the seller is looking for? Closing date, financing, rent back?

If you have any experience with highest and best, you already realize the listing agent will not answer most of these questions. It doesn’t hurt to ask the listing agent and see if they will answer. As a listing agent myself I won’t answer any of them, except I may say how many offers there are.

How much should you offer in highest and best?

This is the million dollar question. There is very little chance the listings agent will tell you how much the other offers are and even if he does, the other buyers could raise their offers. It helps to know how many offers there are, but It only takes one offer to beat you. Whenever I am in a highest and best situation I make the highest offer I can based off my buying criteria and profit potential.

I don’t try to guess what the other offers are. My theory is that I would rather pay a little more than I have to and still get a great deal than try to save money and get beat out. Having said that, don’t pay more than your numbers say you should. Most of this advice applies to investor offers, if you are an owner occupant you have many factors to consider. You need to look at supply and demand, how much you love the house and what neighborhood prices are. Emotion will come into play much more with an owner occupant offer than with an investor offer.

Remember that the list price is not the only thing you should base your offer on in a highest and best situation. Some buyers will think of the list price as the most they will offer, but this may be a huge mistake. I try to think of a multiple offer situation in this way. If the home did not have a list price and I could buy it for whatever price I wanted. What is the maximum amount I would pay for the home? If someone is willing to pay more than I am confident I made my best offer and gave it my best shot. If I get the home, great! I don’t second guess if I could have bought the home for less money, because I can’t go back in time and there is very little chance I will ever know what the other offers were. The worst feeling is knowing you missed out on a great deal by a few hundred dollars and you did not bid your maximum amount.

Financing options when making a highest and best offer

For myself I have the option of offering with a loan or cash on most properties. On my long-term rentals I like to use financing, but I may use a cash offer to give myself a better chance. On fix and flips I will always offer cash, even though I have bank financing on them. The reason I do this is because I can pay cash if needed and my bank doesn’t require appraisals on most of my loans. If you can offer cash, it almost always looks better than a financed offer. Just make sure you can produce a proof of funds letter showing you have the cash. In some situations like with HUD, financing does not matter. HUD only cares about the net price to them. I have much more information on HUD in this article.

Additional ideas to increase the chances of your highest and best offer being accepted

I always explain my financing if I submit a financed offer in a highest and best situation. My portfolio lender does not require an appraisal or repairs on most of my properties. I make sure I tell this to the seller so they know I will close quickly without having any appraisal issues.
Sometimes I will ask for the seller to pay closing costs in my offer to save cash. In highest and best I usually remove the closing costs, because it increases the net to the seller and makes my offer appear stronger.
I usually do not do this, but I have removed my inspection contingency before. Usually I only remove my inspection contingency on newer homes that I have a very good idea about the repairs needed. If a home has had a few offers fall apart because of inspection issues this can be a great way to get the seller to accept your offer.
An increase in earnest money can also get the sellers attention in a highest and best offer situation. If you raise the earnest money and remove the inspection contingency this can really increase the chances of your offer being accepted.
What if the seller has not officially asked for highest and best?

Many times traditional sellers will receive multiple offers, but not ask for highest and best. In many states the listing agent is required to tell all buyers when the seller receives multiple offers. When you are informed that there are multiple offers, don’t wait around to see if they will ask for highest and best. There is a chance they will never ask for highest and best, but you can still revise your offer. If I am notified a seller has multiple offers I immediately ask if they are asking for highest and best. If they don’t know or say no, I will revise my offer right away. If you revise your offer right away they may accept your offer without asking for highest and best and giving other buyers a chance to raise their offers. Another tip is to always ask the listing agent to notify you if they receive other offers after you have submitted your offer. I hate it when I find out I lost out on a house and I was never notified they had other offers!

Conclusion

It is tricky to know how much to offer in a highest and best situation, but stick to your numbers and do not let emotion get involved. It is better to lose out on a home than pay so much that it stops becoming a great deal. Another tip is to always ask the listing agent to notify you if they receive other offers after you have submitted your offer. I hate it when I find out I lost out on a house and I was never notified they had other offers! mferguson