Highest and Best Offer?
An excellent question popped up in the forum recently that struck me as worthy of blogging a little about
Here’s the question, posed by “drewdog”…
I talked to an REO agent today about a property I have not yet submitted an offer on and was told there were about 8 offers and that the bank would “probably ask each bidder for their highest and best”.
Could this mean that the offers are coming in low and they want to get the offers higher? Or is this just a tactic used regardless how the offers are coming in?
The realtor made it sound like asking for everyone’s “highest and best” was unusual. I thought that with the original offer (having) multiple bids, the bank would just take the best offer and be done with it. She even mentioned that some offers may come with “escalator clauses”. If that were so, wouldn’t they already know what the highest and best offers were? Any thoughts? Thanks.
A flurry of insightful responses followed.
Is this the tactic of a lazy listing agent?
Or someone who’s not truly interested in looking out for the best interests of their client by engaging each seller in a healthy game of back and forth negotiations?
Some would say so. But I don’t think so…
(As an aside, for those who may not know, “REO” stands for “Real Estate Owned” and is just a fancy schmancy way of referring to a property the bank has foreclosed on and is now faced with disposing of. Also for the record, another way of saying “highest and best offer” is “best and final offer”)
First, let’s look at Steve’s response…
“Highest and best” is the banks counter offer. They’re acknowledging that they have multiple offers and they want you to come back to them with your best offer. If they have multiple offers and there is one or two they like, their worst case is that they get what has already been offered. By asking for “highest and best” they may get more. It’s actually a smart thing for the banks to come back with.
Exactly.
Now to amplify it a just bit more, I’ll share that In a past life I’ve been a listing agent for REOs. And I’ve had the bank (a.k.a. my client) specifically instruct me to respond to a multiple offer situation with the “highest and best” request.
Why? Because they saw this as a tactic would likely yield them the best offer from those bidding, in the shortest time possible.
And just like Steve said, it’s really not a bad strategy if you stop and think about it. With multiple offers, the bank feels like they have a little leverage and don’t necessarily have to drag negotiations out for days with different buyers. After all, time is money and this whole deal is about the bottom line to them.
So they tell the listing agent to go back to everyone and get “highest and best”, hoping to motivate everyone to show their real hand sooner rather than later.
I know investors who’ve been enticed by this ultimatim to “up” their offer immediately, all the way to their true “highest and best”, for fear of losing the deal. In fact, I’ve done it more than once myself.
Fear of loss can be a powerful motivator if you allow it to be.
But I know others who’ll just as easily walk away for sake of not “playing those kinds of games” with the bank.
Regardless I wouldn’t assume the Realtor’s the one making the request, simply because of my own experience to the contrary. Unless you’ve got a Realtor overstepping his boundaries, then it’s the property seller calling the shots on this, not the listing agent. If you feel the listing agent is taking matters unduly into his own hands, then it’s a matter you need to take up with his broker.
But when bidding on REOs, know that the ‘highest and best” request isn’t out of the ordinary, and the decision’s yours as to how far you should or shouldn’t go in changing your offer.
What do you think? Share your opinion below…
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March 27th, 2008 at 12:38 pm
Thanks for the above explanation as I currently put in an offer and got the “highest and best” response which I and my realtor had never heard of. My response is that I think this is one of many things that needs to be subjected to regulation by law. From a legal perspective, this seems to fly in the face of the most basic contract laws. There is no such thing as a “highest and best” counter from a legal standpoint, as far as I know. I offered all cash and a little above asking price. From a legal standpoint, if mine was the best offer, I believe the bank is legally required to take it. They made a solicitation of offers for a certain price, I met it, and unless someone else’s was better, under what legal theory can the bank just say “highest and best”? I would appreciate any thoughts
April 26th, 2008 at 12:37 pm
Asking for highest and best offers weeds out your serious buyers from those who are just trying to “luck up”. Linda from your comment, I would then say on the flip side there should be some regulation by law of the low ball offers that come in where people think a house should be given away just because it is “bank owned”. Highest and best offer does not always mean the most money. Sometimes it is the best terms. A seller can’t be legally required to do anything in the disposition of “THEIR” property. If they want to forego an additional $20K because the lower offer can close in 2 days opposed to the 15 days proposed in another offer…that is their right to do so…
May 7th, 2008 at 4:03 pm
I agree with T. Nicole. My fiancee and I are home shopping in the California Central Valley right now, and have gotten the ‘highest and best’ offer on multiple homes.
We lost an offer on a home last week to a lower offer (ours was the highest). The other person had a shorter closing length, and a few other details that put them above our offer.
It’s not always a matter of price.