How to Win Highest and Best When Multiple Offers Are Submitted
Last Updated on March 29, 2023 by Mark Ferguson
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 decide how to revise your offer and how much 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.
What does highest and best mean?
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 as well as a real estate investor, 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 decide to give everyone a chance to submit there best offer. In the seller’s 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. The seller will review all offers at the same time and pick the offer they like best.
I used to 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, and some banks have policies that they will not review offers until a home has been on the market for 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 situation, the bank notifies every buyer they have multiple offers, and to submit their highest and best by a certain date and time.
Many traditional sellers (not banks) using highest and best as well. In the past, most traditional sellers may let all buyers know they received other offers, but not officially ask for highest and best. Even if a seller does not formally ask for highest and best, I would treat any situation where a seller gets multiple offers as highest and best.
Do not be scared off by multiple offers
Many buyers do not like it when a seller asks for highest and best. I hear buyers say; “I 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. For more detailed tips on getting your offer accepted here is a great article on how to make an offer that will be accepted.
Why do sellers ask for highest and best?
Highest and best situations can make buyers mad, but the sellers have a good reason to use it. The biggest reason is they want to formally give every buyer notice of multiple offers and give them a chance to raise their offer. Banks, in particular, have been sued a lot and they want to do everything by the book, with paperwork to prove it. Highest and best is usually the fairest 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.
Can you get information from the listing agent about other offers?
If you are dealing with multiple offers, you most likely have a 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 know the listing agent will not answer most of these questions. It doesn’t hurt to ask and see if they will answer. As a listing agent myself I won’t answer any of them, except how many offers there are.
How much should you offer?
There is very little chance the listing agent will tell you how much the other offers are and even if they do, 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 in a highest and best situation. My theory is that I would rather pay a little more, and 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: What is the most I would pay for the home if the house did not have a list price. If someone is willing to pay more, then I am confident I made my best offer and gave it my best shot. I won’t regret trying to save a few bucks by offering less than I was ultimately willing to pay.
How does your loan affect the chances of getting the house?
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 that 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.
How else can you get your offer 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 stronger.
- I will remove my inspection contingency on some properties. 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. Only remove your inspection contingency if you are experienced with repairs and evaluating a home.
- 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 does not ask 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 other 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!
Should you use an escalation clause?
An escalation clause is when a contract states the price will be this unless a higher offer is received, then the price will rise this much over the next highest offer. For example:
Contract price: $100,000
Escalator clause: If the seller receives any offers higher than $100,000, this offer price shall increase to $1,000 more than any higher offer up to $110,000. Any other higher offers must be given to buyers agent to confirm the higher price.
Many buyers feel this is a great way to get the lowest price on a home in a highest and best situation. However, there are many problems with an escalator clause and it may actually cause the buyer to pay more than they would have otherwise.
- The seller is not obligated to show any other offers to the buyer or their agent. Yes, it can be asked for in the offer, but the offer is not signed by the seller and they are not bound to it.
- The buyer has stated in writing they are willing to pay $110,000. A smart seller will simply counter the buyer at $110,000 and does not have to show any other offers to the buyer or their agent, because they did not accept the original offer with those terms. I also do not know how legal it is to show a confidential offer from one buyer to another buyer without their permission.
- Some offers may ask the seller to pay for closing costs and this will change the net price to the seller. Even though this offer is $100,000, another buyer could offer $105,000 with the seller paying $6,000 in closing costs. The second offer is actually lower than the $100,000 offer, but because of the escalator clause, the first offer would raise to $106,000.
- Most banks simply will not accept an escalator clause. It may actually hurt your chances of getting the house and if your agent argues that they have to accept the escalator clause, it could make the banks and listing agent mad, hurting your chances even more.
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 that they had other offers.
“…donโt pay more than your numbers say you should.”
Hey Mark, that’s the crux of it! Unless you’re an Owner Occupant then you may be able to overpay and let Appreciation catch up with you.
Hi Mike,
I personally don’t ever count on a appreciation as an exit strategy. That is how investors get themselves into trouble. With flips you never know when the market might turn and negative cash flow is never a good thing on rentals.
Highest and best pretty much means you aren’t getting the house. If only people would just sell their house and quit making things complicated for everyone.
John, someone is going to get it. Usually highest and best means the house is under priced and people are mad the seller won’t sell it to them for a low price. It is the sellers right to sell the house however they like.
Hi Mark, great article. I have a question for you. I was recently in the middle of negotiating with a bank (as a buyer) when another offer came in, and they asked for highest and best. I had put in an offer on a Friday, the minute the property went on the market. They countered during the weekend, I countered back on the weekend, then on Monday at noon when I still hadn’t heard back, I contacted the listing agent, who said another offer had come in. Pretty soon we were asked for our highest and best, and I ended up losing the deal. Does this happen a lot, in your experience, that banks will ask for highest and best, even when already in negotiions with one buyer? As a seller, I would never do that!
Yes, this happens all the time. It is most banks policies that as soon as they receive more than one offer they will go to highest and best unless the home is under contract.
OK, well, next time my first bid will be at asking price or a little over. No more dilly-dallying! Thanks, Mark!
Kim
That is a good strategy, my thoughts are to jump on it and get it under contract if it is a good deal. It is not worth losing a good deal to try and save a little bit negotiating.
I have a begginer question: Is this technically allowed to submit the seccond buying offer, to be lower then the first one, after getting a Highest and Best notice?
Thanks
Sure, if you want to.
Really enjoyed your article. My question is, if you win the highest and best by submitting an offer that is much higher than the asking price on a fannie mae home path property. And later, during the home inspection you find out that there are major repairs needed, such as roofing or electrical. Can you then negotiate a lower offer with the seller once you are in escrow?
You can try, but there is no guarantee. If the items were easily viewable when you made the offer, the seller will not negotiate much if at all.
Hi Mark,
Thank you for the information. I’ve been reading your blogs almost every day and I find it is very informative. I want to share my story with you. I’m a beginner investor and a new agent just got my license in Feb. I live in Orange County, California. I started looking for a rental property at the end of 2012. The market was crazy at that time. I made offers over and over again but couldn’t land any deals. My husband has a broker license so we are free to check any properties we are interested. We had the highest and best situation once. It was a small condo. We made a cash offer but didn’t raise our price so we ended up loosing the deal. We finally got a deal in Aug 2013. It wasn’t a very good deal though we have positive cash flow. We were so tired of house hunting and making offers. We were willing to take any property as long as we have positive cash flow. Here is the strategy my husband used. He talked to the listing agent and offered 2/3 of his commission to her so the listing agent would be on our side and helped us to get the offer so she could earn more commission. We finally closed the deal after a month. The strategy was worth trying if you are an agent and investor. But I have to say it is really difficult to get your offer accepted in the highest and best situation.
Thank you for the comment! That is one strategy you can use to get great deals. It is very tough in Cali right now.
Is that really legal, let alone ethical?
Asking for highest and best?
I don’t think it is either!
It’s illegal and unethical for Agents but maybe only unethical for Broker
It may be illegal to offer your commission to the other agent if it is not disclosed to the seller. If it is disclosed you may be able to do it. You also may be able to legally have the listing agent represent you as the buyer in which case that should not be a problem.
You are part of the problem in Real Estate today! Coming up with crazy gimmicks! Escalation clause???? Really? This is not a form that is endorsed by KCRAR or our Real Estate Commission! Seems you are kind of sleazy in your business practices! I have been selling real estate for over 30+ years and guys like you float in and float out of the market! I have seen it time and time again! Just in long enough to create problems both ethically and legally!
Hi Candace, I would be careful about how you word comments and jump to conclusions. If you read the article I do not say you should use an escalation clause, I simply explain how they work and how some agents use them. It is not a form, it is an additional provision. I have been in the business 15 years and my dad has been an agent longer than you. I would not jump to conclusions about people without knowing them.
If there is the listing agent receiving multiple highest best offers on a foreclosure how do i know
the agent is not letting the other bidders he is working with let them know the bid i’m making
also on that note would it help if i just ask that my bid be the last one made to the asset manager
there is a risk in that. Many banks require the buyers agent to submit offers to them directly now.
Hi Mark,
I just got bit submitting a highest and best with an escalation clause.
Offered and was countered with just about my cap.
I really wish I had read his article first before making that offer.
What would you recommend I should do at this point?
If you want to pay that much for the house than accept it. It is really up to you. Sorry for the late reply I was on vacation.
Im in a highest and best offer situation ..had to sign a document stating no counter offers and there was a deadline of 12 noon …then i find out they accepted an offer after the deadline and the asked me to counter offer that bid .. at an exzagerated price 20000 more then the property was listed for . Is this even leagel
The seller can counter how they want since it is their house. I am not sure how they would accept an offer and then counter your offer. they cannot accept two offers at once.