It’s a seller’s market as the inventory is low and buyers are pouring in with their offers to get their hands on your house. Some of them are below your listing price, some of them are above, some have better terms and quicker closing dates, and some have higher earnest money.
So should you counteroffer on the house or pick the highest and call it a day?
- What is Counter Offer On a House?
- Highest and Best Offer Tactics
- What Are Contingencies?
- Why Should a Seller Use the “Highest and Best Offer” Tactic?
- Does it Work?
- Received Multiple Offers? Here’s What You Should Do
- Frequently Asked Questions
What is a Counter Offer Real Estate?
If you have a listing agent, they will suggest you go with the classic “highest and best offer” strategy. This may result in a bidding war, and you must factor in the possibility that some purchasers will back out because they do not want to compete in this bidding war!
There is no set counteroffer definition. Simply put, counteroffers are nothing but the return offers made by the seller in response to the previous bid. When a seller receives an offer, he or she has the option to accept, reject, or counter it. If the seller makes a counteroffer, the buyer has the option of reconsidering too. Counteroffers are crucial for sellers to meet their goals.
💰 Counter Offers Instantly!
Houzeo has harnessed cutting-edge technology to introduce the “Counter-Offer” tool. It enables house sellers to send counter-offer proposals to buyer agents and buyers.
How Do Counter Offers Work on Houzeo.com?
Houzeo is a real estate technology platform that allows home sellers to list and sell their property without paying a commission. With their offer tab, you can receive, review and compare the offers right from your seller dashboard. You can do this on their mobile app, on the go! You can even counter an offer all by yourself right from your seller dashboard. This feature is extremely useful in a multiple offers situation.
When Should I Counter an Offer?
Buyers and Sellers can both benefit from the counteroffer. Sellers can directly communicate the offer terms to their agent. The purpose of a counteroffer is to: get a higher price based on comps in the area, shorter closing dates, no contingency periods, or contractual obligations.
💡 Note: When you counter an offer, the original offer is void. Additionally, depending on your state laws, you can only be involved in one sale negotiation at a time.
In short, counter an offer if you want changes with regards to:
- Sale price
- The closing date
- Inspection pre-requisites
|✅ Sells for a better price||⛔ Loss of the sale.|
|✅ You may end up with a flexible closing date with no contingencies||⛔ The terms of the counteroffer may not always be better.|
|✅ A counteroffer might help revisit the terms of the agreement, should the terms change.||⛔ The buyer can always back out of the agreement|
Highest and Best Offer Tactic
What is the “Highest and Best Offer” Tactic and How it Works?
2021 was an unprecedented year and it forced many of us to change the way we live and the properties being sold. For example, 59% of potential buyers came with a demand for work-from features like a finished basement, or an extra room to set up their home office.
So, if your home has any of these features, it is unquestionably a hot property. In this case, you will certainly face a multiple offer situation, and your agent will advise you to go with the “highest and best offer” strategy rather than counteroffering to low-priced buyers.
Under this strategy, you tell the buyers to submit their shiniest offers by a pre-determined deadline.
For example, you could create a sense of urgency with, “SEND IN YOUR HIGHEST AND BEST OFFER BY THURSDAY 6 PM”. Because this strategy informs the buyer that they are not the only ones interested in your property, the buyer will either polish their prior offer or perhaps raise their earlier offer.
⌛ How Does Highest and Best Offer Work on Houzeo.com?
- Houzeo’s new highest and best offer feature makes it easier to counter and request offers directly from buyers or buyer agents.
- Once an offer comes in, the seller can review the offer from their dashboard, counter it or directly ask for the highest and best.
How to Request Highest & Best Offers?
Highest and Best Offer Strategy Process
Ideally, the aforementioned multiple offer strategy works like this.
|1.||The seller lists the house with the help of a listing agent with an asking price of $500,000|
|2.||The seller gets three offers but none are impressive|
|3.||Agent declares multiple offer situations and suggests going for the highest, best, and final offer strategy|
|4.||Buyers come in with their shiniest offers, for example, buyer A with $500,000, buyer B with $510,000, and buyer C with $520,000|
|5.||The seller chooses the highest one i.e. buyer C and the agent tells the other buyers that a buyer has been chosen|
|6.||Now, the buyer and seller move ahead with the contract and the seller starts inspecting the house before moving in.|
|7.||The rest of the offers become “backup offers” in case, the deal with the current buyer fails.|
When Should I Avoid the “Highest and Best Offer” Tactic?
Now, as a disclaimer, “highest” does not always imply “best.” You might be tempted to accept the “highest offer” after seeing an offer price that exceeds your asking price by $10,000, only to discover that they have put ludicrous “contingencies” in their purchase agreement. The best offers, on the other hand, may not be the most expensive, but they have better terms in terms of real estate circumstances. There are no contingencies, a rapid closing date, a large earnest money deposit, and other advantages.
|Buyer||Offer||Counter Offer||Closing Days||Contingency|
Situation 1: Contingency and Closing
As a seller, you must review the whole offer, including any terms that may risk the transaction. Before making a final offer or countering one, you must assess the contingencies and compare closing dates. For example, if the seller is pressed for time and needs to move quickly, selecting the lowest bid makes the most sense. However, for sellers concerned about contingency-based adjustments, accepting Buyer B’s offer may make the most sense.
Situation 2: When Buyer increases their initial offer
Let’s say buyer B misjudged the situation and thought nobody would offer more than his bid. So, he moves up from his previous offer price to $530,000, which he could have done in the first place but chose not to because he miscalculated the situation. Buyer B puts forward his new offer to the seller’s agent.
Now, the seller’s listing agent has a legal responsibility to present his client with ALL the offers. As the agent tells the seller about B’s offer, the seller will likely turn their back on buyer C and terminate the deal to resign a new deal with buyer B.
So, what are contingencies? And why should their presence in your purchase agreement worry you?
What Are Contingencies and How They Can Affect Your Home Selling Journey?
Contingencies were dubbed “weasel clauses” because they allowed the buyer to bail out of the deal even after it was completed. Various contingency clauses have long been popular, and buyers have used them to back out of deals even when the sellers believed their home was in good condition and sold.
In fact, among house sales that were executed as recently as February 2020, 71% of deals had contracts with contingencies in them. Some of the most common were home inspection (53%), home appraisal (44%), and home financing (43%).
Here’s a glance at the most common contingencies that inhibits your house selling journey and might even terminate the deal.
|Types of Contingencies||Valid for||Follows||How to get rid of them?|
|Home Inspection||7-10 days||Often first||i. Pre-listing inspection|
|Home Appraisal||21 days||Home Inspection||i. Sell to a cash buyer
ii. Negotiate it out (in case of seller’s market)
|Home Financing||30-60 days||In conjunction with appraisal||i. Sell to a cash buyer
ii. Sell to a pre-approved buyer
|Home Sale Contingency||Variable||Independent||i. Ask them to remove it
ii. Ask them to apply for a bridge loan
Contingencies in Real Estate
Let’s discuss a little more about each contingency.
🏡 Home Inspection
This contingency requests for a professional home inspector to assess and document the property for any health, mechanical, or safety risks. This contingency lasts for 7-10 days after the closing and then it expires. During the inspection stage, the buyer can call the deal off for any – reasonable or unreasonable – cause, such as “the bus stop is too far away”.
You can avoid this contingency by doing a pre-listing inspection yourself. You need to submit the inspection report to the buyer at the time of showing. This might encourage the buyer to not include a home inspection contingency in the contract. However, buyers might not put faith in an inspection done by the seller and would still request a home inspection themselves. So, you can expect some disagreement here.
📅 Home Appraisal
This contingency is valid for 21 days after signing the papers and allows the buyer to call the deal off if the after-sale valuation of the property is lesser than the purchase price. According to the home appraisal contingency, the after-sale valuation of the house must match or exceed the purchase price, if it doesn’t, the buyer and seller will have to discuss who will cover the discrepancy in the loan offered by the lender. If the two parties cannot concur then the buyer has the freedom to cancel the deal
💡 How to Negotiate Out of the Appraisal Contingency
(a.) sell your house to a cash buyer. As they are not dealing with a bank for a loan, an appraisal is less likely to happen or interfere with the sale. If you receive multiple offers and one of them is all cash then you can choose that buyer over others, just check for the proof of funds before you finalize the deal.
(b.) You can negotiate the deal. If it’s a seller’s market then a buyer can write off this contingency completely while making their highest and best offer. Even if the house is appraised at a lower value, the buyer will cover it up from their own pocket. Again, check for the proof of funds!
💰 Home Financing Contingency
This contingency, simply put, allows the buyer to abandon the deal if they are not able to get a bank loan within 30-60 days from the day of closing. This is one of the riskiest contingencies to have in your purchase agreement. It can falter your home selling process even when the deal was completed. To protect yourself from this contingency, sell your home to a cash buyer or sell it to a buyer who has a pre-approval from the lender. If it’s a seller’s market, the buyer may entirely waive this contingency as part of their counteroffer on the house, even if they’ve already made their best and highest offer.
⌛ Home Sale Contingency
Some buyers wish to sell their current house before they buy a new one. Some reasons could include not being able to afford two mortgages, or maybe because they want to use their selling proceeds as a down payment for their new house. Whatever the reason, this is also a risky contingency to have on the contract. The buyer might not be able to sell off his house for any reason – they didn’t price it right, they didn’t market it effectively, their property requires a lot of repairs – and until they sell their house, they won’t be able to buy yours.
- 💡 NOTE: Ask the buyer to remove this contingency or you can ask them to find an alternative solution like a bridge loan.However, keep in mind that even if they remove these contingencies to get to the final offer, that doesn’t mean they are not entitled to conduct an inspection or appraisal on their own. Removal of these contingencies simply means that you won’t be left hanging by the seller when you thought that your house was good and sold.
Why Should a Seller Use the “Highest and Best Offer” Tactic?
When you have multiple offers, the highest and best offer strategy can be extremely beneficial for the seller. If you are selling a house and your agent has suggested you implement this tactic then it’d benefit you in several different ways like:
✅ Better quality offers
Once the sellers ask for the highest and best offers the buyers tend to put forward a higher offer than their previous one and also a “best offer” by waiving off the contingencies or conditions to appear genuinely interested in the property. The buyers can even put in earnest money deposits to tilt the scale in their favor.
✅ Expediting the selling process
When the highest and best offer tactic converts to the highest, best, and final offer tactic, you – as a seller – can quicken the selling process. In this method, you don’t just tell buyers that you want the highest and best offer, but you also warn them that this is the final round of putting forward an offer. The offer chosen in this round will be final.
This can save you a humongous amount of time by not getting into negotiating offers and counteroffers on the house.
🏠 Compare Multiple Offers on Houzeo!
- Use Houzeo’s offer tab to upload multiple offers. To get the whole picture and evaluate each offer on its own merits, upload buyer prequalification letters, earnest money deposits, and contingencies.
- This allows you to evaluate offers based on price, buyer qualification, financing, deposits, and conditions, and determine which offer is best for you.
- You might choose to reply to all open offers by telling interested parties to submit their highest and best offers if you have multiple offers.
Does the “Highest and Best Offer” Strategy Always Work?
On what we discussed above, a highest and best offer scheme will work wonders if timed right – it might make your house sell for higher than you priced it for, and a quick closure is also guaranteed. However, if not timed right, this strategy might be equally ineffective as it is effective.
🚫 Before you have multiple offers
Some real estate agents have noted that people put up the highest and best on the very first day they list their property. It might be possible that the seller wants to sell their property quickly but doing that on the very first day or when you are not even really in a multiple offer situation, can have some serious drawbacks.
🚫 Overestimation of your property or market
Even if the market is hot, you should not engage in the unethical behavior of trying to extort money from the buyer. When your asking price has already been matched or exceeded, you should not strive to raise it or go for the highest and best. This could result in your property being evaluated for less than the contract price, resulting in a protracted discussion or, worse, the buyer canceling the sale. Remember that making an offer is not the final step; closing the deal is.
Introducing the Houzeo Mobile App!
- View your listing
- Manage your showings online
- Review and compare offers
- Counter an offer
- NEW! Buyers can now search your property and save it in “Favorites”
So What is the Final Offer?
As a seller, you and your agent can maintain the integrity of the tactic by going with the “NOT Final” strategy.
This way, you will not only get the highest and best offer from the buyers but the losing bidders will get another shot to improve their offers. Also, with this tactic, there are high chances that you will get the right buyer. By “right” buyer we mean the one whose offer has the highest price and the best terms.
Received Multiple Offers? Here’s What You Should Do
Receiving multiple offers on a house is always a good indication, especially in this housing market. Because multiple offers – equal a higher selling price. While sites like Zillow, Houzeo, and Redfin have a simplified review process for multiple bids, other FSBO platforms will require a few extra steps for assistance.
|💻 Read the terms||An initial offer will always include the terms of countering. They could be any contingencies, pre-approval, flexible closing dates, earnest money, mortgage lender status, escalation clause etc.|
|🌍 Understanding your local market||The local market has a significant impact on how you manage offers. For example, if income levels in your area are low, financial contingencies or pre-approvals will make several offers and obtaining a competitive price for your home extremely difficult.|
|👨⚖️ Negotiation tactics||As a seller, you will always have the upper hand in counter offers. Use this to remove contingencies or reduce the closing date.|
|📝 Prioritize your objectives||Set the terms of the sale and prioritize your objectives. Whether it's getting the best price possible, an instant cash offer, a quick closing, or skipping inspection. Handling multiple offers will be a piece of cake this way.|
Do Realtors Lie About Other Offers?
A broker cannot conceal information about offers on a property, according to the Realtor Code of Ethics. However, there are a few real estate brokers that will lie about an offer, lie by omission, or lie by misleading you. You could always counteroffer or put in an escalation clause requiring them to present all bids outright and allowing the buyer to negotiate directly with the seller.
- 💡 NOTE: An escalation clause or escalator should only be used when you are confident about multiple offers. This way the maximum purchase price will be predetermined
In the event of multiple offers, using the highest, best, and final offer negotiation approach as a seller will not only allow you to conclude the process quickly but will also help you to sell your home for more than your asking price. It can also provide you with the “best bargain” with no strings attached or faster closing date.
The strategy is highest and best, not just highest. As a seller, you should not be fooled by high prices but always go for a deal closed on time with fewer obligations on your side.
Frequently Asked Questions
Can a seller counter highest and best offer?
Yes, the listing realtor can counter the “highest and best” offer, after you review them. Sellers can choose from multiple offers that have come from the buyer's side.
What happens when there are 2 offers on a house?
If the seller has multiple offers, he/she typically goes with one of three actions: take on the most suitable offer, counters every offers to give everybody a chance to come back with a stronger bid in an attempt to get the best price and terms, or counters the offer closest to the price and terms the seller’s expecting.
Can you put an offer on a house that already has an offer?
Yes you can, provided the enacted contract has not been signed. You can even accept the offer, or ask the seller if they can have you as a back up option.
Should a seller always take the highest offer?
No, each seller has their own objective, time frame, and terms. They can only accept a final offer after analyzing all of the restrictions for several bids and terms that appeal to their selling goals.
Can you ask what the highest offer is on a house?
You can receive many offers as a seller at the same time. In many states, the agent is required to inform buyers of every offer the seller gets; however, this may not always include the highest and best offer.
Can seller back out of accepted offer?
Yes. The purchase agreement will remain void if there are contingencies in place or if both parties have not signed it. A seller can back out of the offer legally at any time during the negotiation.
Can buyer back out of accepted offer?
Yes. The purchase agreement will remain void if there are contingencies in place or if both parties have not signed it. A buyer can back out of the offer legally at any time during the negotiation. However, if the sale agreement is signed, the contract will remain binding.
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